GIFT  OF 
Mrs.   Berton  Einstein 


KEEPING  UP  WITH 
RISING  COSTS 


BY 

WHEELER  SAMMONS 

Of  the  EDITORIAL  STAFF 
of  SYSTEM 


A.  W.  SHAW  COMPANY 

CHICAGO  NEW  YORK 

LONDON 


'•em 


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THE  AUTOMATIC  LETTER  WRITER 
BUSINESS  ADMINISTRATION 

GOOD  WILL,  TRADE-MARKS  AND 
UNFAIR  TRADING 

KEEPING  UP  WITH  RISING  COSTS 
Other  Business  Books  in  Preparation 


THE  MAGAZINE  (/MANAGEMENT 


COPYRIGHT,  1915,  BY 
A.  W.  SHAW  COMPANY 


KEEPING  UP  WITH 
RISING  COSTS 


I— HIGHER  COSTS  AND  HOW  TO 
MEET  THEM 

I    THE  RISING  COST  OF  DOING  BUSINESS       ...  9 

Why  are  profits  dwindling  because  of  rising  costs? — 
Cost  information  and  standards  with  which  to 
fight  higher  costs 

II    COST  FIGURES  FROM  1560  STORES       ....          17 

Where  the  merchant's  money  goes— Cost  averages 
and  expenses  that  locate  store  leaks 


H-WHAT  IT  COSTS  TO  SELL 
THE  GOODS 

III  THE  COST  OF  MAKING  SALES 37 

How  much  a  clerk  can  waste — Ways  to  net  more 
money  through  each  salesman 

IV  How  MUCH  TO  PAY  FOR  RENT  ....          55 

What  is  rent? — How  to  make  increased  rentals  pay 
for  themselves — Five  plans  that  reduce  rent 

V    THE  COST  OF  GETTING  TRADE  ....          71 

Advertising  costs  against  which  to  check  for  losses 
— What  show  windows  are  worth — Tested  methods 
that  cut  advertising  bills 


III— WHAT  IT  COSTS  TO  KEEP 
STORE 

VI    DELIVERY  COSTS  AND  METHODS         ....          93 

Maintaining  profits  when  competitors  give  more 
service — Five  successful  ways  to  reduce  delivery 
expenses — Is  a  motor  truck  better  than  a  horse? 

VII     BAD  DEBTS  AND  HIDDEN  LOSSES        ....         109 

How  much  does  it  cost  to  give  credit? — How  to 
cover  losses  with  reserve  accounts — Hidden  losses 
that  weaken  the  business 


CONTENTS 


VIII    KEEPING  DOWN  MISCELLANEOUS  EXPENSES         .         .         123 
How  91  merchants  in  14  states  handle  "overhead" — 
Store  practice  that  controls  genera]  expenses,  light, 
heat,  supplies,  depreciation  and  shrinkage 


IV— MAKING  MONEY  ON  HIGHER 
COSTS 

IX    POLICIES  IN  RETAIL  COST  KEEPING  .         .         .         141 

Fixing  the  value  of  a  cost  system  in  dollars  and 
cents— Successful  methods  that  get  results  with- 
out red-tape 

X    STANDING  UP  FOR  YOUR  PROFIT         ....        156 
When  is  a  merchant  making  a  net  profit  and  when 
is  he  not? — Four  elements  that  fix  profits  after  a 
living  wage  is  paid— Typical  profits  from  80  lines 

XI    MORE  TURNOVERS,  THE  ANSWER  TO  HIGHER  COSTS       .         175 
Taking  two  profits  instead  of  one — Four  methods 
that  speed  up  the  rate  of  turnover 


FIGURES 

I  HOW  COSTS  HAVE  GONE   UP             .....  13 

II  COSTS  AND  PROFITS   FROM   579   CONCERNS       ...  31 

III  AVERAGE   COSTS   OF   DOING  BUSINESS     ....  33 

IV  WHERE   THE   MONEY   GOES 39 

V  WHAT  SIX   LINES  SPEND   FOR  RENT         ....  68 

VI  COSTS  IN   A   RETAIL  CLOTHING   BUSINESS 

VII  ADVERTISING   COSTS   IN   TWELVE   LINES              ...  77 

VIII  ITEMIZED   COSTS   FOR   FIVE   LINES             ....  97 

IX  PROFITS,   COSTS  AND   DISCOUNTS,   BY  LINES  .             .             .  Ill 

X  PROFITS,   COSTS   AND   DISCOUNTS,   BY    TRADES            .             .  119 

XI  HOW  MANY   TURNOVERS   TO   MAKE  A  PROFIT?           .             .  127 

XII  STANDARDS   FOR  CHECKING   COSTS            .             .             .             .  128 

XIII  HOW  MORE    ORDERS  INCREASE   EXPENSES        .             .             .  131 

XIV  A   HANDBILL  THAT   HOLDS  CUSTOMERS                .             .             .  159 

xv  HOW  RETAILERS'  AND  MANUFACTURERS'  PROFITS  COMPARE  161 

XVI  DETERMINING,   FIGURING  AND   SECURING   PROFITS  .             .  167 

XVU  TURNOVERS   IN  NINE   STORES         .             .             .             .             .  177 

XVIII  TURNOVERS  IN   ELEVEN   LINES      .                          .             .             .  189 

FORMS 

I  A  CARD  HISTORY  OF  TURNOVERS  ....  143 

H  STOCK  PLAN  FOR  SIX  MONTHS 143 

III  AND  IV  COMPARING  ESTIMATED  AND  ACTUAL  PAYROLLS  146 

V  HOW  A  BUDGET  HELPS  TO  CHECK  EXPENSES  .  .  147 

VI  APPROPRIATIONS  FOR  SUNDRIES  .....  147 

VII  AND  VIII  LISTING  DAILY  SALES  AND  PROFITS  .  .  148 

IX  TO  XXII  COST  COMPARISONS  THAT  CONTROL  .  .  153 


A  VERAGE  cost  of  doing  business  figures  from  over  one 
±\.  thousand  five  hundred  distributive  concerns  make  this  book 
different  from  any  other  ever  published.  Never  before  has 
it  been  possible  to  obtain  figures  of  this  sort  from  American  mer- 
chants, for  they  have  been  jealously  guarded  "trade  secrets"  It 
has  been  a  blind  race  against  rising  costs  with  "the  devil  take  the 
hindmost."  If  business  is  actually  growing  into  a  new  pro- 
fession— the  greatest  of  all  the  professions — then  the  fifteen  hun- 
dred-odd men  who  forgot  the  "trade  secret"  bogey  and  made 
this  book  possible  belong  among  the  founders  of  that  profession. 

There  is  not  space  for  the  one  thousand  five  hundred  names , 
otherwise  they  would  be  printed  here  as  fully  as  the  confidential 
conditions  under  which  the  figures  were  collected  would  permit , 
for  each  merchant  deserves  as  much  commendation  as  the  next. 
They  are  therefore  referred  to  in  a  group — a  group  that  binds 
together  by  a  high  ideal  men  with  both  large  and  small  material 
interests:  John  Wanamaker  and  John  Bellaire;  Edward  A. 
Filene  and  Edward  P.  Russell,  and  so  on  through  the  long  list. 

Although  it  is  not  possible  to  mention  individually  all  who 
contributed  figures  and  methods  to  the  book,  reference  must  be 
made  to  a  number  of  the  private,  public  and  semi-public  organi- 
zations that  have  given  generous  assistance.  These  have  labori- 
ously collected  cost  figures,  and  their  results,  when  correlated  with 
the  other  costs  obtained  in  the  field  by  SYSTEM'S  investigator st 
in  no  small  degree  give  the  book  its  authority.  They  also  are 
too  numerous  for  mention  in  full,  but  the  following  particularly 
deserve  the  thanks  of  those  who  find  use  for  the  hundreds  of 
tested  means  of  expense  control  given  in  the  pages  that  follow: 

The  National  Dry  Goods  Association;  The  National  Associa- 
tion of  Commissary  Managers;  The  National  Pipe  and  Supply 
Association;  The  Electric  Vehicle  Association  of  America 
(William  P.  Kennedy's  delivery  costs);  The  National  Shoe 
Wholesalers'  Association;  The  National  Association  of  Retail 
Grocers  of  America;  The  Bureau  of  Business  Research;  Harvard 
Graduate  School  of  Business  Administration;  The  Extension 
Division,  University  of  Wisconsin;  The  National  Hardware 
Association  of  the  United  States;  The  National  Boot  and  Shoe 
Manufacturers*  Association;  The  National  Shoe  Retailers' 
Association;  The  National  Wholesale  Grocers'  Association;  The 
National  Retail  Hardware  Association;  The  Harvard  Cooper- 
ative Society;  The  General  Fire  Extinguisher  Company;  Robert 
H.  Ingersoll  and  Brother;  Marshall  Field  and  Company;  The 
Curtis  Publishing  Company;  and  Wilson  Brothers. 

To  these  and  to  all  who  have  helped  to  make  this  volume 
possible,  grateful  recognition  is  now  extended. 

THE  PUBLISHERS 


• 


PART  I 

HIGHER  COSTS 

AND 
HOW  TO  MEET  THEM 


THE  RISING  COST  OF  DOING 
BUSINESS 


COSTS  are  greater,"  says  the  manufacturer.  "Net 
earnings  are  lower,"  states  the  shipper.  "Margin 
of  net  profit  is  closer,"  the  wholesaler  and  retailer  re- 
spond. "Prices  are  higher,"  adds  the  consumer. 

Cross-section  any  record  of  accounts,  from  cost  of 
making  to  household  budget,  and  you  find  the  same 
slowly  shrinking  percentage  left  over  for  profits.  It 
is  a  big  problem.  Reasons  given  are  as  unsatisfactory 
as  they  are  many — politics,  scarcity  of  gold,  rapid  devel- 
opment of  new  wants,  extravagance,  wild  financing. 
Many  theories  are  advanced,  few  facts. 

Busmess  men  face  facts,  not  theories.  So  out  of  busi- 
ness has  come  a  nation-wide  questioning. 

National  bodies  of  manufacturers,  wholesalers,  re- 
tailers, bankers,  shippers,  are  asking  not  only  why  profits 
are  dwindling  in  many  lines,  but,  with  conditions  as  they 
exist,  how  to  stop  this  steady  gain  of  costs  upon  selling 
prices  which  constantly  threatens  to  narrow  profits 
down  to  nothing. 

Several  years  ago  SYSTEM  presented  the  results  of 
a  cost  investigation  beginning  with  these  words:  "Fif- 
teen years  it  takes  to  make  a  business  man — five  to 
know  what  goods  and  clerk  hire  total;  five  to  know  the 
cost  to  keep  store ;  five  to  recognize  profit  and  stand  up 


10 HOW  COSTS  ARE  RISING 

for  it."  In  the  interval,  this  investigation  has  been 
widely  extended  and  conditions  have  improved.  Na- 
tional associations  have  taken  up  the  work  of  assembling 
average  costs  in  this  and  that  line;  wholesalers  and 
manufacturers  have  gathered  statistics ;  universities  like 
Harvard  and  Wisconsin  have  collected  figures  from 
many  concerns.  Special  investigators  have  covered  a 
wide  territory  and  even  audited  the  books  of  many  con- 
cerns for  totals  that  permit  the  soundest  comparison. 
A  summary  of  these  figures,  at  first  representing  the  cost 
of  doing  business  in  579  establishments  and  gradually 
extending  to  include  more  than  1,500  stores,  after  repro- 
duction in  SYSTEM,  is  in  the  following  chapters  pre- 
sented in  fully  revised  form  and  with  figures  most  care- 
fully verified. 

The  assembling  of  this  material  is  one  sign  of  a 
new  era — that  of  cooperation  between  manufacturer, 
distributor  and  retailer — in  which  the  old-fashioned 
secrecy  that  put  the  average  store  at  the  mercy  of  cut 
price  competition  and  "  shaded "  qualities  is  giving  way 
to  the  helpful  interchange  of  data.  Early  in  the  investi- 
gation it  was  found  that  the  more  progressive  merchants 
in  almost  every  town  selected  for  study  were  keenly 
interested  in  determining  average  standards  of  costs. 
The  investigators  worked  out  a  method  of  tabulating 
accurate  returns  in  cipher,  so  as  to  take  care  of  the 
merchant's  legitimate  interest  in  keeping  his  figures 
from  his  immediate  competitors.  The  result  was  and 
still  is  gratifying,  for  the  investigation  has  continued 
successfully  and  many  merchants  are  still  volunteering 
figures  which  make  the  averages  on  hand  constantly  of 
greater  value.  The  readiness  of  manufacturers,  jobbers 
and  dealers  to  help,  their  quick  recognition  of  their 
need  and  of  the  value  of  more  definite  knowledge  of  the 

1 


COSTS  AND  PROFITS  11 

proportionate  items  of  costs,  indicate  a  fundamental 
advance  in  methods  of  doing  business. 

Magic  percentages  based  on  no  foundation  except 
legend  are  constantly  cropping  out  in  business.  If  the 
manufacturer  wants  to  charge  depreciation  on  a  ma- 
chine— he  writes  off  ten  per  cent.  A  wholesaler  is  at- 
tempting to  fix  a  price  that  will  protect  the  retailer — 
he  adds  ten  per  cent.  The  dealer  feels  his  need  of  a 
sum  to  cover  incidentals — again  the  ten  per  cent.  Busi- 
ness men  are  finding,  however,  that  traditional  stand- 
ards no  longer  hold;  that  they  must  know,  first,  the 
items  which  constitute  their  cost  of  doing  business; 
second,  how  these  items  vary. 

No  magic  figure  for  all  lines  is  to  be  expected.  But  just 
as  all  men  are  very  close  to  the  average  man,  so  out  of  the 
investigation  of  many  men's  efforts  to  do  business  at 
low  cost  and  with  high  profit  merge  reasonable  standards 
for  single  expense  items  and  fair  averages  for  the  total 
cost  of  doing  business  in  one  and  another  line,  above  or 
below  which  the  average  dealer  in  that  line  is  unwise 
to  go. 

/^OST  standards  enable  the  merchant  to  match  his  dis- 
\~s  advantages  with  his  advantages  so  accurately  that 
he  can  easily  pick  the  top-heavy  items. 

Rent  is,  for  example,  unusually  heavy  with  the  furni- 
ture store,  clerk  hire  with  the  shoe  store ;  turnover  slow 
or  investment  per  sale  heavy  with  the  jeweler,  and  ex- 
actly the  opposite  with  the  variety  store  owner.  Even 
within  the  same  line  there  are  interesting  variations 
which  not  only  explain  the  success  and  failure  of  various 
concerns,  but  also  indicate  how  any  store  can  develop  an 
individuality.  Where,  for  example,  advertising  expense 
is  held  down,  show-window  expense  or  rent  for  a  central 


12 HOW  COSTS  ARE  RISING 

location  may  be  correspondingly  high  in  the  cost  of  doing 
business.  The  two  factors  balance  against  each  other 
and  two  merchants  having  different  retail  costs  succeed, 
each  by  making  the  most  of  his  position. 

Out  of  comparative  figures  there  is  nothing  more 
vital  for  the  merchant  to  get  than  a  definite  realization 
of  his  advantages  and  disadvantages,  so  that  he  can 
economize  where  necessary  and  throw  the  weight  of  his 
outlay  into  that  phase  of  selling  or  service  which  counts 
most  in  the  net  result. 

Twelve  general  lines  of  business  have  been  chosen  for 
the  grouping  of  the  cost  figures.  These  percentages 
cover  an  average  of  something  over  one  thousand  con- 
cerns. What  these  standard  figures  are  and  how  to 
put  them  to  work  in  your  store  is  the  subject  matter 
of  the  first  chapter.  In  the  following  three  chapters,  the 
subject  covered  is,  roughly,  direct  selling  expense.  This 
is  taken  to  include  salaries,  with  efficiency  methods  for 
cutting  down  the  ratio  clerk  hire  bears  to  sales  and  to 
profits;  rents  and  their  relation  to  the  store  location 
and  the  floor  space  which  yields  the  most  profit ;  adver- 
tising forces  and  their  effective  use  by  the  retailer. 

Operating  expenses,  including  averages  and  cost-cut- 
ting methods,  occupy  the  next  three  chapters.  The  first 
deals  with  delivery  costs  and  cost-cutting;  the  second, 
with  losses  through  depreciation,  bad  debts  and  so  on; 
the  third  with  upkeep,  supply  and  miscellaneous 
expenses. 

In  the  third  section  of  the  book  are  presented  the  cost 
and  merchandising  policies  which  the  investigation  has 
shown  to  be  the  keys  to  success  in  some  of  the  most 
prosperous  concerns  with  which  SYSTEM  has  come  in 
touch.  In  this  part  of  the  book  these  resourceful  mer- 
chants give  their  proved  solutions  of  the  problem  of 


COSTS  AND  PROFITS 


13 


keeping  up  with  rising  costs  and  strengthening  dwindling 
profits.  The  establishment  of  a  cost  policy  and  system 
intended  to  give  you  your  own  figures  and  enable  you  to 
compare  them  with  standards  is  discussed  in  the  first 
chapter;  mark-ups  and  profits  which,  going  beyond  the 
interest  on  capital  and  the  manager's  wages,  insure  him 
a  true  profit  in  return  for  the  extra  initiative  he  has 
shown  and  the  risks  he  takes,  in  the  second;  turnover, 
the  all  important  factor  of  use  of  investment,  in  the 
third  and  last. 


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»                          1895                         1909                          190&                         1910             191J,' 

FIGURE  I:     Rising  costs  of  doing  business  are  shown  to  be  advancing 

with  equal  rapidity  in  both  large  and  small  stores,  for  the  three  lines,  each 

representing  an  actual  retail  concern,  are  all  but  parallel 


14 HOW  COSTS  ARE  RISING 

COSTS  and  PROFITS  from  TWENTY-FOUR  STATES 

Costs  of  doing  business  and  profits  from  thirty-eight  stores  in  cities 
ranging  in  population  from  7,500  to  300,000  or  over  in  twenty-four  states 
are  here  analyzed.  These  facts  were  collected  by  the  National  Dry  Goods 
Association.  It  is  exceedingly  significant  that  the  average  cost  of  doing 
business  is  set  at  23.8  per  cent  of  the  sales,  while  SYSTEM'S  national 
investigation,  made  both  independently  and  previously,  fixed  the  average  at 
£3.05  per  cent,  as  detailed  on  page  20. 

GROSS  PROFITS  (STATES  WITH  FIVE  HIGHEST  PERCENTAGES): 

Kentucky 33.86%        Alabama 30.50% 

Minnesota 33.30%        Virginia 31.41% 

Tennessee 33 . 12% 

AVERAGE  COSTS  OF  DOING  BUSINESS  (STATES  WITH  SIX 
HIGHEST  AVERAGE  PERCENTAGES): 

Tennessee 27.34%        Nebraska 26.83% 

Indiana 27.00%        Alabama 25.94% 

Minnesota 27.00%        Texas 25.58% 

AVERAGE  NET  PROFITS  (STATES  WITH  SIX  HIGHEST  AVERAGE 
PERCENTAGES): 

Utah 11.00%        Louisiana 9.40% 

Kentucky 10.66%        Michigan 8.00% 

West  Virginia 9.80%        New  York 6.00% 

AVERAGE  GROSS  PROFITS  (BY  POPULATION  AND  LOCALITY): 

75,000-100,000  population 33 .23% 

15,000-25,000  population 31 .29% 

100,000,  and  over,  population. 31 .07% 

50,000-75,000  population 30.20% 

25,000-50,000  population. 30.00% 

Farming  districts 31 .80% 

Manufacturing  and  farming  localities 30 . 00% 

Resorts 29 .95% 

Manufacturing  centers 29 . 88% 

AVERAGE  COSTS  OF  DOING  BUSINESS  (BY  POPULATION  AND 

LOCALITY): 

300,000,  and  over,  population  (lowest) ...  . . .  21 . 25  <; 

75,000-100,000  population  (highest) 27.  " 

Shipping  centers »  24 . 

Farming  districts 24 . 52<; 

Resorts ' 24.00< 

Manufacturing  centers 23 . 22* 

AVERAGE  NET  PROFITS  (BY  POPULATION  AND  LOCALITY): 

300,000,  and  over,  population  (highest) 8 . 40<; 

100,000,  and  over,  population  (lowest) 5.91' 

Farming  districts 7.28( 

Manufacturing  centers 6.66* 

Manufacturing  and  farming  localities 6 . 251 

Resorts 5.95< 

Shipping  centers 5.50* 

A  number  of  interesting  facts  will  be  brought  out  by  a  few  moments' 
study  of  these  figures.  Notice,  for  instance,  that  the  lowest  costs  join  with 
the  highest  net  profits  in  the  larger  cities.  The  averages  for  all  of  the  stores 
in  the  twenty -four  states  are:  gross  profit,  30.45  per  cent;  net  profit,  6.45 
per  cent;  cost  of  doing  business,  23.8  per  cent.  It  should  be  understood 
that  these  percentages  only  refer  to  dry  goods  stores.  The  figures  that 
established  these  averages  were  carefully  audited  by  experts. 


COSTS  AND  PROFITS 15 

It  is  fortunately  coming  to  be  recognized  as  the  most 
imperative  fact  in  business  that  an  article  costs  more, 
and  probably  is  worth  less,  every  day  it  lies  on  your 
shelves.  Against  the  plan  of  taking  a  ten  or  twenty 
per  cent  net  profit  fifteen  years  ago,  the  modern  mer- 
chant matches  the  plan  of  taking  three  or  four  or  five 
per  cent  as  many  times  in  a  year  as  his  father  turned 
his  stock  in  half  a  decade. 

Before  this  alert  merchandising,  the  methods  of 
Grandfather's  Chair  can  not  stand.  The  whole  process 
of  distribution  seems,  therefore,  to  be  shifting  into  line 
with  small  stocks  and  quick  turns. 

Fixtures  that  help  the  customer  decide  quickly  and 
for  himself  have  the  call  over  equipment,  however  costly, 
that  retards  turnover.  Better  appraisal  of  depreciation 
and  shrinkage,  with  its  accompaniment  of  frequent 
clearance  sales,  is  an  essential  of  fast-turn  storekeeping, 
except  as  buyers  grow  in  skill  at  balancing  stocks  ac- 
curately against  standard  price  demand.  The  manu- 
facturer, commission  man  and  wholesaler  sometimes 
complain  that  they  have  become  large  scale  retailers  to 
dealers  who  order  small  lots  incessantly.  But  those  who 
are  making  the  most  money  have  accepted  the  situation ; 
regulated  their  plants  and  shipping  facilities  to  this 
flow  of  trade ;  adopted  the  policy  of  short  stocks  for  them- 
selves ;  and  thrown  the  weight  of  their  influence  for  sound 
profits,  permanent  regular  trade  and  short  credits. 
Where  the  manufacturer  has  failed  to  do  these  things, 
large  retailers  have  in  several  instances  taken  over 
factories  in  order  that  demand  might  make  supply 
keep  step. 

"With  this  period  of  necessary  service  and  cooperation 
at  hand,  no  enterprise  at  any  point  in  the  chain  of  dis- 
tribution can  afford  not  to  know  what  cost  items  should 


16 HOW  COSTS  ARE  RISING 

be  and  how  to  keep  the  retailer  on  a  sound  profit  basis. 
This  fact,  already  sensed  by  thousands  of  merchants 
and  manufacturers,  is  the  reason  for  this  book. 

SYSTEM  's  investigations  and  studies  of  cost  standards 
and  cost  control  are  still  going  on.  These  present  figures 
make  no  pretense  to  being  final,  but  instead  merely  at- 
tempt to  offer  averages  of  everyday  practices  which 
should  help  any  merchant  who  studies  them  to  better 
almost  all  departments  of  his  storekeeping.  More  de- 
tailed figures  will  be  presented  and  discussed  in  SYSTEM 
from  time  to  time;  and  as  knowledge  of  costs  becomes 
more  general,  such  standards  of  expense  will,  the  pub- 
lishers believe,  very  greatly  improve  the  balance,  sta- 
bility and  general  prosperity  of  American  business, 


II 


COST  FIGURES  FROM  1560 
STORES 


RISING  costs  all  but  closed,  within  the  past  year, 
the  doors  of  a  department  store  which  counts  its 
annual  sales  in  tens  of  millions.  A  month  after  moving 
to  a  new  building,  the  cost  of  doing  business  increased 
from  twenty-four  and  five-tenths  per  cent  of  the  sales 
until  it  reached  thirty-three  and  three-tenths.  The 
president  called  his  directors  to  a  special  meeting.  * '  We 
face  ruin, ' '  he  said  to  them.  '  *  I  know  that,  because  our 
expenses  are  eating  up  exactly  one-third  of  our  sales. 
In  the  old  store  they  never  exceeded  twenty-six  and  five- 
tenths  per  cent.  You  know  as  well  as  I  do  that  retailing 
drives  ahead  under  terrific  speed  nowadays,  depending 
for  safety  on  rapid  turnovers  at  a  net  profit  so  small 
that  an  increase  of  a  per  cent  or  two  means  failure. 
We're  seven  per  cent  too  high.  The  fact  that  we  can 
borrow  five  hundred  thousand  within  half  an  hour  tem- 
porarily saves  us.  But  there's  a  limit  to  our  credit. 
Therefore,  I  leave  it  to  you  to  cut  our  expense  into  the 
twenties  before  the  end  of  this  month.  If  you  don't, 
we  're  going  under,  taking  with  us  a  factory  or  two. ' ' 

Three  directors  were  at  once  appointed  a  committee 
to  reduce  expenses.  By  going  through  the  store,  depart- 
ment by  department,  they  quickly  discovered  that  under 
the  enthusiasm  of  expanding  to  the  new  building, 


18 HOW  COSTS  ARE  RISING 

"  luxuries "  had  been  allowed  to  creep  into  equipment 
and  payroll.  These  they  located  and  weeded  out.  A 
reference  library  was  abandoned,  a  stenographer  dis- 
charged here  and  a  clerk  there,  the  lights  over  the  mar- 
quees no  longer  burned  all  night,  store  guides  were  set 
to  helping  behind  the  counters,  the  head  electrician  was 
assigned  to  detail  work  and  one  of  his  subordinates 
released.  By  the  end  of  the  month  expenses  were  twenty- 
six  and  two-tenths  per  cent  of  the  sales.  The  store  is 
making  a  satisfactory  net  profit  today. 

A  retailer  of  men's  furnishings  in  an  Indiana  town 
was  rescued  from  a  corresponding  situation  by  taking  a 
traveling  salesman  into  his  confidence.  "I  sold  twenty- 
nine  thousand  last  year — after  taking  out  thirty-five 
dollars  a  week  for  my  work,  I  had  left  about  two  hundred 
dollars  net,"  he  explained. 

The  manufacturer  had  given  his  selling  force  rough 
cost  averages  for  clothing  stores  and  had  instructed  them 
to  protect  future  business  by  helping  storekeepers  who 
could  not  "spot"  the  expenses  which  drove  their  costs 
too  high.  The  salesman  offered  to  classify  the  retailer's 
expenditures.  "You're  too  high  on  your  selling 
expense,"  he  declared,  after  figuring  out  percentages 
for  the  more  important  items.  "The  sales  were 
$29,030.19  and  you  paid  out,  including  what  you  drew 
yourself,  $3,556.57  for  wages.  That's  exactly  twelve  and 
a  quarter  per  cent  of  your  sales,  and  it  should  be  about 
ten.  On  that  one  item  alone  you're  six  hundred  dollars 
above  the  average." 

"That  backs  up  what  I've  been  thinking,"  replied 
the  retailer.  "One  of  my  men  asked  for  a  raise  just 
when  I  was  buying  out  my  former  partner,  and  I  gave 
it  to  him  because  he  knows  people  about  town  and  I 
thought  I  needed  his  influence.  Since  then  he  has 


FIGURES  FROM  1560  STORES 19 

lain  down  on  the  job  and  I've  had  to  hire  a  young  fellow 
from  Chicago  to  help  us.  I  guess  that  is  why  I  am 
spending  too  much,  but  I  had  no  way  of  telling.  Now 
he's  got  to  make  more  sales,  stand  a  reduction,  or  get 
out." 

FAILURE  or  success  depends  on  the  exactness  of  the 
merchant's  knowledge  of  his  costs  and  gross  profit 
margins  because  slight  variations  frequently  mean  losses. 

Variations  in  the  expense  account  as  slight  as  these 
point  success  or  failure  today  because  the  cost  of  doing 
business,  rising  with  the  advance  in  rentals,  wages  and 
supplies,  has  cut  down  the  net  profit  on  sales.  Manu- 
facturer, middleman,  and  retailer,  you  are  all  three 
straining  with  equal  power  to  keep  up  with  your  costs. 
And  the  consumer,  he  calls  his  struggle  the  high  cost 
of  living.  Are  not  net  profits  in  many  great  manufac- 
turing businesses  dwindling,  although  the  sales  volumes 
were  never  so  large  ?  Do  not  the  railroads  report  record 
breaking  gross  earnings,  but  net  profits  that  disappoint 
their  stockholders  ?  Have  not  those  sellers  at  retail  and 
wholesale  who  are  making  money,  changed  their  methods 
from  receiving  rooms  to  counters  in  the  effort  to  equal 
with  numerous  slim  profits  the  single  generous  profit 
they  took  fifteen  years  ago? 

This  uphill  climb  which  retail  costs  are  taking  parallels 
an  apparent  increase  in  manufacturing  and  jobbing 
expenses  of  operation.  When  the  cost  of  doing  business 
goes  up  one  per  cent,  profits  net  that  same  per  cent  less. 
The  chart  on  page  13  shows  where  costs  have  been 
going  for  the  past  twenty  years.  Without  a  halt,  they 
have  increased  until  doubled.  For  instance,  retailers 
whose  memories  run  back  a  quarter  century  recall  eight 
and  ten  per  cent  as  a  normal  cost  of  doing  business.  A 


HOW    COSTS    ARE    RISING 


COST  AVERAGES  and  EXPENSES 

"Costs  of  doing  business"  in  these  tables  exclude  freight  and  cartage, 
losses  from  mark-doums,  and  gains  through  discounts.  "Salaries"  indicates 
direct  sales  payrolls,  in  some  instances  including  the  time  spent  by  the 
proprietor  in  setting.  "Delivery"  and  "light,  heat  and  power"  include 
payroll  and  upkeep  charges.  All  irregular  stock  losses  and  all  depreciation 
are  listed  under  "depreciation  and  shrinkage."  Items  which  cannot  be 


DRY  GOODS  STORE  COSTS 

The  cost  of  doing  business  itemized 
above  is  the  average  for  the  United  States 
as  found  by  the  investigation.  Note  (1) 
that  stores  handling  the  cheaper  stocks 
have  been  eliminated;  (2)  that  annual 
sales  volumes  of  over  five  hundred  thou- 
sand dollars  were  not  included;  (3)  that 
freight  and  cartage  charges  are  not  in- 
Rent 3.24% 

Salaries 9.65% 

Advertising 1.67% 

Heat  and  light 54% 

Delivery 1.02% 

Supplies 38% 

Insurance  and  Taxes 1.08% 

General  Expenses 4.15% 

Depreciation  and  Shrinkage 1-11% 

Bad  Debts...  .     .21% 


Total  Percentage  of  Expenses  to 

Sales 23.05% 


AVERAGE  DRY  GOODS  STORE 

This  store  is  in  the  Southwest.  The 
owner  reports  that  he  secures  four  turn- 
overs a  year  through  the  store  at  a  net 
mark-up  of  28.9  per  cent.  Note  how 
closely  these  actual  figures  check  with  the 
averages  for  the  United  States  given  on 
the  left. 

Rent.  .                   ...$  1,550.06  or   3.1' 
Salaries 4,800.19  or    9.6< 


Advertising . 

Heat  and  Light 

Delivery 

Supplies 

Insurance  and  Taxes 
General  Expenses  . . . 
Depreciation  and 

Shrinkage 

Bad  Debts... 


750.03  or 

200.01  or 

450.02  or 

200.01  or 

550.02  or 


2,200.09  or  4.4< 

700.03  or 
150.01  or 


Total  Expense $11,550.47  or  23.1% 


A  SMALL  DRY  GOODS  STORE 

Investigation  showed  that  on  the 
average,  small  dry  goods  stores  pay  out 
again  for  expenses  16.21  per  cent  of  their 
sales.  Note  that  this  typical  middle- 
western  small  store:  (1)  makes  no  de- 
liveries; (2)  does  not  use  expensive  selling 
space. 

Rent $   731.12  or    2.9% 

Salaries 2,546.31  or  10.1  % 

Advertising 302.53  or    1.2% 

Heat  and  Light 100.84  or      .4% 

Delivery 

Supplies 50.42  or      .2% 

Insurance  and  Taxes  .      201 .69  or      .8% 

General  Expenses 50.42  or      .2% 

Depreciation  and 

Shrinkage 100.84  or      .4% 

Bad  Debts...  25.21  or     .1% 


A  LARGE  DRY  GOODS  STORE 

Average  dry  goods  stores  securing 
annual  sales  above  two  hundred  thousand 
dollars  pay,  the  investigation  established, 
expenses  of  24.76  per  cent  when  in  com- 
petition with  department  stores  in  the 
larger  cities.  This  Indiana  store  typifies 
them.  Note  (1)  the  high  advertising  per- 
centage; (2)  the  rent. 

3.4< 


Salaries 

22  276  09  or    9  9% 

Advertising  
Heat  and  Light  
Delivery 

6,975.34  or    3.1% 
2,025.10  or      .9% 
3  150  15  or    1  4% 

Supplies  
Insurance  and  Taxes 
General  Expenses  .  . 
Depreciation  and 
Shrinkage  
Bad  Debts 

1,575  .08  or      .7% 
2,700.13  or    1.2% 
4,950.24  or    2.2% 

3,150.15  or    1.4% 
450  02  or      .2% 

Total  Expense $4,109.38  or  16.3%       Total  Expense $54,902.67  or  24.4% 


FIGURES  FROM  1560  STORES 


21 


from  the  BOOKS  of  1560  CONCERNS 

allocated,  administrative  and  buying  salaries,  indirect  payrolls  and  invest- 
ment charges  make  up  "general  expense."  All  figures  refer  to  net  sales. 
Add  1.5  per  cent  for  Pacific  Coast,  southern  and  mountain  states;  and  2  per 
cent  for  cities  over  400,000.  Deduct  .5  per  cent  for  Atlantic  Coast  and 
3  per  cent  for  rural  districts.  Annual  sales  exceeding  $5,000,000,  readjust- 
ments for  smaller  volumes,  and  size  of  packages  are  not  considered. 


GROCERY  STORE  COSTS 

Analyses  of  the  expenses  of  groceries 
scattered  from  New  York  to  Oregon  fixed 
this  average  cost  of  doing  business.  Note 
(1)  that  groceries  drawing  trade  from 
customers  with  either  small  or  large 
incomes  are  not  included;  (2)  that,  since 
the  average  mark-up  is  19.91  per  cent  of 
the  selling  prices,  the  turnovers  are  of 
necessity  rapid  and  carry  a  low  net  profit 

Rent 3.07% 

Salaries 8.46% 

Advertising 83% 

Heat  and  Light 39% 

Delivery 2.53% 

Supplies 37% 

Insurance  and  Taxes 58 

General  Expenses 45 

Depreciation  and  Shrinkage 76 

Bad  Debts  . .  .47 


AN  AVERAGE  GROCERY  STORE 

In  a  middle-western  town  of  forty-three 
thousand  this  grocery  handles  annual 
sales  of  fifty  thousand  dollars  at  an  ex- 
pense close  to  the  average.  Note  (1) 
that  advertising  costs  less  than  in  other 
lines;  (2)  that  delivery  expenses  amount 
to  almost  as  much  as  the  rent. 

Rent $2,256.95  or   : 

Salaries 4,067.09  or    ; 

Advertising 351 .48  or 

Heat  and  Light 251 .05  or 

Delivery 954.01  or 

Supplies 150.63  or 

Insurance  and  Taxes  .       200.84  or 

General  Expenses 150.63  or 

Depreciation  and 

Shrinkage 301.27  or 

Bad  Debts 150.63  or 


Total  Percentage  of   Expenses 
to  Sales 17.91% 


Total  Expense $8,834.58  or  16.4% 


A  SMALL  CASH  GROCERY 

It  is  natural  that  among  groceries 
handling  for  cash  only  a  trade  drawn 
from  modest  incomes  investigation  should 
fix  an  expense  percentage  - 14.77  per 
cent  -  below  the  average.  These  figures 
from  a  city  store  represent  this  type  of 
grocery.  Note  (1)  that  there  is  no  de- 
livery expense  or  loss  from  bad  debts; 
(2)  that  a  good  location  is,  however, 
rented. 

Rent $    291.92  or    2.7% 

Salaries 1,048.76  or    9.7% 

21.62  or      .2% 
32.44  or      .3% 


Advertising 
Heat  and  Light 

Delivery 

Supplies 21.62  or 

Insurance  and  Taxes .  .  43.25  or 
General  Expenses  ....  21.62  or 
Depreciation  and 

Shrinkage 86.50  or 

Bad  Debts.. 


LARGE  CREDIT  GROCERY 

Investigation  also  supported  the  ac- 
cepted conclusion  that,  when  groceries  sell 
on  credit  to  an  exclusive  trade,  their  ex- 
penses run  above  usual  levels.  These 
expenses,  paid  by  a  city  store,  typify  the 
average  -  18.97  per  cent -found  for  this 
class  of  groceries.  Note  (1)  the  rent; 
(2)  the  wage  total;  (3)  the  delivery  ex- 
pense. 

Rent $  2,009.10  or    2.7% 

Salaries 6,771.40  or    9.1% 

595.29  or      .8f 


Heat  and  Light  
Delivery  
Supplies  
Insurance  and  Taxes  . 
General  Expenses  .  .  . 
Depreciation  and 
Shrinkage  
Bad  Debts  

223.23  or      .3% 
2,232.33  or    3.0% 
297.64  or      .4% 
223.23  or      .3% 
595.29  or      .8% 

744.11  or    1.0% 
595.29  or      .8% 

Total  Expense $1,567.73  or  14.5%       Total  Expense $14,286.91  or  19.2% 


HOW  COSTS  ARE  RISING 


VEHICLE  STORE  COSTS  AN  AVERAGE  VEHICLE  STORE 

Here  is  the  percentage  pointed  by  the  These  figures  are  from  the  books  of  a 

investigation  as  the  average  cost  of  doing  store  selling  $57,600  worth  of  vehicles  and 

a  vehicle  and  implement  business  in  the  implements  annually  in  an  eastern  city  of 

United  States.     Note  (1)  that  this  cost  is  thirty -three    thousand.     They    total    to 

second  above  the  lowest  fixed  -  the  aver-  withm  one  per  cent  of  the  average  for  the 

age  for  mail  order  houses  (15.02  per  cent) ;  country  given  to  the  left. 

(2)  that  salaries  are  proportionately  high       Rent $1  094  63  or    1  Q% 

because  sales  are  not  large  enough,  mdi-  Salan'p<;                            ^  SIX  81  nr  in  i<? 

vidually,   to  counterbalance  their  infre-  Advertising'  1 ! ! ! ! ! ! ! !  *W*l  or    L!  % 

quency.  Heat  and  Light 345.67  or      .6% 

Rent 2.12%       Delivery 518.51  or      .9% 

Salaries 9.41  %       Supplies 230.45  or      .4% 

Advertising ». . .   1 .22  %  Insurance  and  Taxes .  .      460.90  or      .8% 

Heat  and  Light J. . .     .51  %       General  Expenses 230.45  or      .4% 

Delivery 1.06%  Depreciation  and 

Supplies 42%  Shrinkage 403.28  or      .7% 

Insurance  and  Taxes 1.04%       Bad  Debts 115.22  or      .2% 

General  Expenses 71  %  

Depreciation  and  Shrinkage 62% 

Bad  Debts 33% 

Total  Percentage  of  Expenses  to 

Sales 17.44%       Total  Expense $9,851.65  or  17.1% 


girl  who  could  satisfactorily  trim  hats  would  work  for 
three  dollars  a  week  then.  Purchases  were  wrapped  in 
old  newspapers,  costing  ten  cents  a  package,  and  cus- 
tomers not  only  were  willing  to  wait  their  turn  to  buy, 
but  carried  home  what  they  bought.  Two  dollars  spent 
for  printing  and  circulating  an  annual  announcement 
card  covered  advertising  expenses ;  coal  could  be  had  for 
two  dollars  and  a  half  a  ton. 

Eben  Jordan,  founder  of  Jordan,  Marsh  and  Com- 
pany, could  have  recalled  an  expense  percentage  of  six- 
teen per  cent  in  his  department  store,  which  is  now  prob- 
ably glad  to  handle  the  largest  retail  volume  in  New 
England  at  more  than  one  and  a  half  times  that  cost. 
About  fifteen  years  ago  grocers  thought  ten  to  twelve 
per  cent  a  reasonable  expense  percentage.  Today  fifteen 
to  twenty  per  cent  is  a  fair  average.  Reports  from  over 
seventy  per  cent  of  the  members  of  a  large  association 
of  shoe  wholesalers  show  that  their  average  cost  of  doing 
business  has  risen  from  eleven  per  cent  in  1905  to  thir- 
teen per  cent  in  1912. 


FIGURES  FROM  1560  STORES 


VARIETY  STORE  COSTS 

Typical  variety  stores  in  the  United 
States  were  found  to  "be  paying,  when  av- 
eraged, these  expenses.  Note  (1)  that 
rents  rank  high  because  good  locations  are 
usually  demanded;  (2)  that  the  advertis- 
ing expenditure  includes  "leaders"  put  on 
the  counters  at  a  loss  to  attract  trade;  (3) 
that,  since  the  turnover  is  rapid  and  the 
cost  of  doing  business  low,  this  line  is 
profitable  under  a  suitable  volume  and 
mark-up. 

Rent 4.41% 

Salaries 8.86% 

Advertising 1.52% 

Heat  and  Light 81  % 

Delivery 

Supplies 21  % 

Insurance  and  Taxes 98% 

General  Expenses 91% 

Depreciation  and  Shrinkage 06% 

Bad  Debts... 


AN  AVERAGE  VARIETY  STORE 

These  figures  from  a  variety  store  in  a 
town  of  two  thousand  check  well  with  the 
average  for  the  country.  The  sales  total 
about  eleven  thousand  dollars  a  year. 
Note  (1 )  that  there  are  no  delivery  charges 
and  no  losses  from  defaulted  debts;  (2) 
that  this  store  can  net  fifty  per  cent  on  the 
i  nvestment  unde  r  a  net  mark  -up  of  twenty- 
three  per  cent  through  ten  turnovers. 

Rent $   451.49  or    4.1 

Salaries 980.07  or 

Advertising 165.18  or 


Heat  and  Light 

Delivery 

Supplies 

Insurance  and  Taxes . 
General  Expenses  .  .  . 
Depreciation  and 

Shrinkage 

Bad  Debts .  .  , 


19.11  or 

'22.02  or 
99.11  or 
55.06  or 

11.01  or 


Total  Percentage  of  Expense  to 
Sales 17.76% 


Total  Expense $1,803.05  or  17.1% 


Here  is  a  comparison  of  the  costs  of  doing  business 
during  1883  and  1913  in  a  small  department  store  which 
has  made  money  for  over  thirty  years  in  a  city  now 
rapidly  growing  out  of  the  twenty-five  thousand  class: 

1883         1913 

Rent    . 1.9%  3.2% 

Salaries 5.3%  9.1% 

Advertising    9%  1.5% 

Heat  and  Light 3%  .5% 

Delivery    1.6% 

Supplies    2%  .4% 

Insurance  and  Taxes 5%  1.1% 

General    Expenses 2%  .4% 

Depreciation  and  Shrinkage 6%  .9% 

Bad  Debts .2% 

9.9%         18.9% 


Many  reasons  may  be  assigned  to  explain  these  rising 
costs — competition,  constant  changes  in  styles,  diversi- 
fied stocks  and  dozens  of  other  causes.  Whatever  the 
reason,  the  method  whereby  any  merchant  may  get  on  a 


24  HOW  COSTS  ARE  RISING 


HARDWARE  STORE  COSTS  AN  AVERAGE  HARDWARE  STORE 

This  is  the  standard  cost  of  retailing  In    an    Indiana    town    of    about    five 

hardware  in  America  as  fixed  by  analyses  thousand  a  hardware  store  with  sales  of 

of  typical  stores  in  Canada  and  the  United  forty -five  thousand  dollars  a  year  pays 

States.     Note    that    the    business    takes  these    expenses,   which    are    remarkably 

healthy  net  profits  but  does  not  secure  as  close   to   the   standard.    Note    (1)   that 

many  sales  as  stores  handling  lines  in-  salaries  are  excessive  because  sons  of  the 

yolying    lower    average    costs.     Reports  owners  work  in  the  store  at  abnormal 

indicate    that    often    concentration    on  wages;   (2)  that  the  losses  from  bad  debts 

profitable  repairs  results  in  dingy  hard-  are  unusually  high. 

ware  selling  floors  and  lost  sales.  Rent jj  ,305.6!  or   2.9< 

Rent 3.41%       Salaries 5,042.35  or  11.2« 

Salaries 10.11%       Advertising 405.20  or      .9<; 

Advertising 1.12%       Heat  and  Light 225.10  or      .5< 

Heat  and  Light 43%       Delivery 270.13  or      .6< 

Delivery 91%       Supplies 180.08  or      .4f 

Supplies 60%  Insurance  and  Taxes ..      495.23  or    1.1( 

Insurance  and  Taxes 99%       General  Expenses 360.17  or      .8% 

General  Expenses 2.01  %  Depreciation  and 

Depreciation  and  Shrinkage 52%  Shrinkage 225.10  or      .5* 

Bad  Debts 31%       Bad  Debts 180.08  or     A1. 


Total  Percentage  of  Expenses  to 
Sales 20.41%       Total  Expense $8,689.05  or  19.3% 


firm  foundation  and  keep  ahead  of  rising  costs  is  clear. 
Each  individual  must  know  accurately  his  costs  of  doing 
business.  He  must  find,  by  such  carefully  collected  and 
averaged  figures  as  are  here  given,  just  what  these 
standards  of  cost  may  be  expected  to  be  under  present 
conditions.  Not  until  then  can  he  work  intelligently 
with  the  reasons. 

The  charts  given  in  these  pages  are  typical  of  condi- 
tions which  affect  today  every  distributor  of  a  product — 
manufacturer,  jobber,  retailer.  Here  are  average  costs. 
What  is  to  be  done  about  them?  How  do  they  grow — 
can  they  be  reduced? 

They  grow  because  the  entire  course  of  distribution  is 
changing.  Producers,  jobbers  and  retailers  are  making 
over  their  methods  in  the  effort  to  keep  up  with  busi- 
ness expenses.  The  retailer  attempts  to  sell  out  his  stock 
a  number  of  times  at  the  dwindling  net  profit  in  order 
to  secure  the  one  long  profit  which  could  be  taken  twenty- 
five  years  ago  on  a  single  turnover.  To  do  this  he  must 


FIGURES  FROM  1560  STORES  25 


CLOTHING  STORE  COSTS  AN  AVERAGE  CLOTHING  STORE 

This  average  cost  of  selling  clothes  at  This  cost  of  doing  business  is  paid  by 

retail  in  the  United  States  was  set  by  the  a  clothier  in  the  middle-west  who  secures 

investigation's  analyses  of  actual  figures  annual  sales  of  sixty  thousand  dollars, 

from  all  sections  of  the  country.     Note  Note  (1)  that  the  rent  is  low  because  an 

that  stores  in  large  cities,  for  which  a  entire  building  was  leased  and  improved 

separate  cost  standard  of  30.12  per  cent  until  space  not  needed  for  selling  could  be 

was  fixed,  are  not  included;    (2)  that  the  subleased  at  a  profit;  (2)  that  the  cost  of 

advertising    expenditure    is    the    highest  heating  is  reduced  by  supplying  tenants; 

scheduled  in  the  standards,  if  furniture  (3)  that  these  savings  are  thrown  into  the 

and  department  stores  are  excepted.  advertising  appropriation. 

Rent 3.04%       Rent $  1,322.24  or    2.2% 

Salaries 9.49%       Salaries 5,469.29  or    9.1% 

Advertising 3.16%       Advertising 2.043.47  or    3.4% 

Heat  and  Light 62%       Heat  and  Light 180.31  or      .3% 

Delivery 65%       Delivery 360.61  or      .6% 

Supplies 43%       Supplies 120.20  or      .2% 

Insurance  and  Taxes 1.07%  Insurance  and  Taxes .        661.12  or    1.1% 

General  Expenses 2.31%  General  Expenses  ...     1,081.84  or    1.8% 

Depreciation  and  Shrinkage 2.16%  Depreciation  and 

Bad  Debts 34%  Shrinkage 1.322.24  or    2.2% 

Bad  Debts 240.41  or     .4% 

Total  Percentage  of  Expenses  to 

Sales 23.27%       Total  Expense $12,801.73  or  21.3% 


buy  frequently  in  small  quantities,  instead  of  once  or 
twice  a  year.  Wholesalers  are  forced  to  become  prac- 
tically retailers  on  a  large  scale.  "The  druggists  are 
now  sending  in  orders  for  dozens  in  lines  which  they 
formerly  bought  by  the  case, ' '  says  a  partner  in  a  middle- 
western  wholesale  house.  "We,  therefore,  have  to  carry 
our  stock  in  a  different  way  and  go  to  considerable  added 
expense  for  rehandling.  If  this  development  continues, 
our  concern  will  be  nothing  more  than  a  large  retail 
drug  store.'*  The  manufacturer,  warned  of  changing 
conditions  by  the  jobbers,  no  longer  makes  goods  far 
ahead  to  store  them  for  demand,  but  fits  his  production 
to  the  call  for  frequent  small  orders. 

Fixtures,  service  and  increased  stocks  add  to  the 
retailer's  cost.  Behind  him  are  the  manufacturer  and 
jobber.  In  many  lines  the  manufacturers  have  turned 
to  styles  as  a  competitive  weapon  and  constantly  bid  for 
trade  with  new  designs.  This  means  more  machinery, 
more  labor,  more  overhead.  And  the  jobbers,  as  has  been 


HOW  COSTS  ARE  RISING 


DRUG  STORE  COSTS 

Costs  of  doing  a  retail  drug  business 
were  averaged  to  this  standard.  Note  (1) 
that,  if  department,  furniture  and  jewelry 
stores  are  not  considered,  higher  rents 
are  paid  than  in  any  other  standard  retail 
activity;  (2)  that  soda  fountain  profits 
normally  make  it  possible  to  pay  the 
high  rents;  (3)  that  many  specialties  not 
connected  with  old  line  drug  stocks  are 
now  used  to  build  net  returns  above  the 
rising  expenses. 

Rent .  4.02% 

Salaries 10.95% 

Advertising 1.76< 

Heat  and  Light 

Delivery 51 

Supplies 

Insurance  and  Taxes 1.21 

General  Expenses 4.49( 

Depreciation  and  Shrinkage 47 

Bad  Debts.  .  .  .19  < 


AN  AVERAGE  DRUG  STORE 

The  expenses  here  itemized  are  paid  by 
a  druggist  who  handles  annual  sales  of 
twenty  thousand  dollars  in  a  middle- 
western  city.  They  are  close  to  the 
average  for  the  country,  given  to  the 
right.  Net  gains  from  the  soda  profit  are 
sufficient  to  care  for  the  $924.65  spent 
for  rent. 

Rent $    924.65  or    4.6% 

Salaries 2,191.01  or  10.9^ 

Advertising 

Heat  and  Light 

Delivery 

Supplies 

Insurance  and  Taxes . . 
General  Expenses  .... 
Depreciation  and 

Shrinkage 100.50  or 

Bad  Debts 40.20  or 


Total  Percentage  of  Expenses  to 

Sales 24.65% 


Total  Expense $4,844.34  or  24.1% 


shown,  now  carry  stocks  so  diversified  that  their  total 
purchases  in  1880  would  not  fill  out  some  single  lines 
bought  to  present  standards. 

So  much  for  the  way  in  which  costs  are  increasing 
and  the  changes  in  trade  which  follow  in  the  wake  of 
rising  costs.  More  important  to  the  man  who  is  paying 
rent  and  hiring  clerks  is  the  question  of  how  to  reduce 
the  cost  of  doing  business. 

First,   all  must  agree- — stop  guessing. 

Retailers  go  to  the  sheriff  at  the  rate  of  thirty  a  day 
because  they  guess.  Here  are  the  proportions  of  the 
retailers  in  three  places  who  are  actually  guessing  today 
about  their  cost  of  doing  business : 

Town  of  5,000  (Indiana) 95% 

City  of  30,000   (Illinois) 39% 

City  of  26,000  (Illinois) 29% 

Dealers  in  towns  and  cities  of  this  size  sell  over  two 
billion  dollars'  worth  of  merchandise  every  year;  and 
their  competition,  a  large  percentage  of  it  based  on 


FIGURES  FROM  1560  STORES 


FURNITURE  STORE  COSTS 

The  standard  here  given  is  the  average 
found  after  analyzing  the  cost  of  retailing 
furniture  in  the  United  States.  Note  (1) 
that  the  bulky  nature  of  the  stocks  drives 
rent  higher  than  in  any  other  itemized 
national  average,  those  for  department 
and  jewelry  stores  excepted;  (2)  that  gener- 
al expenses  are  unusually  heavy,  partly  on 
account  of  the  incidental  repairing  neces- 
sitated by  poor  packing. 

Rent 

Salaries 

Advertising 

Heat  and  Light 

Delivery 

Supplies 

Insurance  and  Taxes 

General  Expenses 

Depreciation  and  Shrinkage . 
Bad  Debts..  . 


Total  Percentage  of  Expenses  to 
Sales 


AVERAGE  FURNITURE  STORE 

These  figures  from  a  store  which  sells 
one  hundred  thousand  dollars'  worth  of 
furniture  a  year  in  the  south  are  typical 
of  the  average  established  for  the  line  in 
this  country.    Note  that  the  loss  from  bad 
debts  is  the  heaviest  encountered  among 
the    costs    here    assembled    from    stores 
operating  under  normal  conditions. 
Rent  ..............  $  5,511.56  or 

Salaries  ........... 

Advertising  ........ 

Heat  and  Light.  .  .  . 

Delivery  .......... 

Supplies  .......... 

Insurance  and  Taxes 
General  Expenses  .  . 
Depreciation  and 

Shrinkage  ........     1,904.03  or 

Bad  Debts  .........     1,202.54  or 


5.5% 
8,317.60  or    8.3% 


2,906.15  or 
801.70  or 

1,102.33  or 
501.06  or 

1,402.97  or 

1,803.82  or 


2.9 

.8% 
1.1% 

.5% 
1  .4% 
1.8% 

1.9% 
1.2% 


. 26.51  %       Total  Expense $25,453.76  or  25.4% 


guesswork,  helps  set  prices.  If  they  sell  a  shirt  for  two 
dollars  and  guess  they  make  a  dime,  but  really  lose  three 
cents,  every  other  retailer  has  to  meet  their  price  and 
attempt  to  make  up  the  loss  elsewhere.  The  owner  of 
one  of  the  most  extensive  shoe  factories  in  this  country 
believes  that  a  majority  of  the  dealers  in  shoes  at  retail 
would  be  found  insolvent  if  expert  accountants  were  to  go 
over  their  books. 


/^1 UESSING  at  costs  partly  explains  why  merchants 
^Jf  complain  that,  when  the  year  is  over  and  the  balance 
struck,  profits  are  smaller  than  they  anticipated. 

There  are  two  reasons  for  this  continued  guesswork 
which  endangers  the  retailers'  profits  and  leaves  the 
jobbers  or  manufacturers  in  the  dark  about  the  dis- 
tribution expenses  to  be  covered  in  over-the-counter 
prices.  First,  nine  retailers  out  of  ten  refuse  to  talk 
freely  about  their  sales  and  expenses.  Second,  the  run 
of  retailers  find  it  difficult  to  figure  overhead  charges 


28  HOW  COSTS  ARE  RISING 


JEWELRY  STORE  COSTS  AN  AVERAGE  JEWELRY  STORE 

Jewelers,  investigation  showed,  pay  the  In  Kansas  one  jeweler's  books  show 
highest  average  retail  expenses,  if  some  these  expense  payments.  There  is  not 
of  the  largest  department  stores  are  over-  an  item  in  which  they  vary  from  the  na- 
looked.  The  standard  is  here  given.  tional  average  by  more  than  two  per  cent. 
Note  (1)  that  the  turnovers  secured  under  An  Indiana  jeweler  has  cut  his  payroll  to 
these  high  costs  are  slow;  (2)  that,  there-  five  per  cent  by  advertising  his  repair 
fore,  net  profits  are  often  unsatisfactory,  bench  and  dividing  the  clerks'  time  be- 
even  when  heavy  net  mark-ups  are  real-  tween  it  and  the  counters. 

ifed;    (3)  that,  hence,  safe  novelties  and       Rent $1,080.40  or    3.6% 

healthier  returns  from  repairs  are  needed.       Salaries 3,361.23  or  11.2% 

Rent 4.98%       Advertising 1,050.38  or    3.5% 

Salaries 10.96%       Heat  and  Light 180.07  or      .6% 

Advertising 2.85%       Delivery 30.01  or      .1% 

Heat  and  Light 61%       Supplies 270.10  or      .9% 

Delivery 09%  Insurance  and  Taxes .        540.20  or    1.8% 

Supplies 89%       General  Expenses 630.23  or    2.1% 

Insurance  and  Taxes 1 .32  %  Depreciation  and 

General  Expenses 3.95%  Shrinkage 360.13  or    1.2% 

Depreciation  and  Shrinkage 95%       Bad  Debts 90.03  or      .3% 

Bad  Debts 21% 

Total  Percentage  of  Expenses  to 
Sales 26.81%       Total  Expense $7,592.78  or  25.3% 


and  apportion  them  among  lines.  They  know  the  invoice 
cost,  the  freight  charges,  and  the  clerk  hire  total,  but 
get  into  trouble  when  it  comes  to  calculating  general 
expenses  and  figuring  charges  to  capital. 

If  to  stop  guessing  is  the  first  step  in  the  way  to  reduce 
the  cost  of  doing  business,  the  second  is  to  make  com- 
parisons with  standards.  A  mass  of  statistics  is  pre- 
sented in  table  form  in  this  chapter.  Retailers  in  the 
several  lines  may  compare  their  costs  with  the  averages 
and  with  the  actual  costs  in  the  stores  chosen. 

In  making  any  of  these  comparisons  it  is  of  course 
necessary  that  each  retailer  know  his  own  expenses.  The 
stock  he  buys  probably  all  comes  in  through  the  back 
door  of  the  store ;  there  is  one  entrance  for  it  and  one 
place  for  sorting  and  checking  it.  He  must  put  the  same 
degree  of  restriction  around  the  money  he  handles  in 
the  store.  He  must  see  that  it  gets  out  of  the  cash 
drawer  in  but  one  way — through  an  expense  account 
carefully  classified.  By  thus  scheduling  his  costs  and 


FIGURES  FROM  1560  STORES 29 

COSTS   FROM  A  JEWELRY  DE-  COSTS    FROM    A    WHOLESALE 

PARTMENT  JEWELRY   STORE 

This  is  a  department  in  a  large  depart-  This  is  a  prosperous  wholesale  jewelry 
ment  store  in  the  east.  The  rate  of  turn-  business  situated  west  of  the  Mississippi 
over  is  about  twice  as  high  as  any  repotted  river.  It  is  probable  that  this  cost  of 
from  individual  stores.  The  net  profit  on  doing  business  is  higher  than  in  the  ma- 
each  turn  is  lower,  however,  and  the  costs  jority  of  lines  at  wholesale. 

higher.  Rent $  3,600.99        .9% 

Rent $20.184.64      5.6%        Salaries 36,410.01      9.1  % 

Salaries 35,683.56      9.9%        Advertising 1,600.44        .4% 

Advertising 14,778.04      4.1  %        Heat  and  Light 3,600.99        .9% 

Heat  and  Light 3,243.96        .9%        Delivery 3,200.88        .8% 

Delivery 3,964.84      1.1%        Supplies 6,401.76      1.6% 

Supplies 5,046.16      1.4%  Insurance  and  Taxes. .     2,800.77        .7% 

Insurance  and  Taxes.  .     2,883.52        .8%        General  Expenses 8,402.31      2.1% 

General  Expenses 15,498.92      4.3%  Depreciation  and 

Depreciation  and  Shrinkage 3,200.88         .8% 

Shrinkage 6.127.48      1.7%        Bad  Debts .     3,600.99        .9% 

Bad  Debts 360.44        .1%  

Tota  Expenses $107,771.56    29.9%        Total  Expenses $72,820.02     18.2% 


thinking  out  the  conditions  under  which  he  sells  goods, 
he  will  strike  upon  the  one  paying  way  to  get  quality, 
volume  and  profits  pulling  together  in  his  locality.  The 
lines  which  yield  the  most  will  become  evident.  One 
retailer,  when  he  got  these  facts,  discovered 'that  he  could 
put  his  business  to  work  on  an  * '  allowance. ' '  He  treated 
it  like  a  son  going  away  to  school,  and  permitted  it  to 
spend  for  expenses  only  a  reasonable  amount.  Most 
important  of  all,  he  saw  that  it  accounted  to  him  regu- 
larly and  accurately  for  its  expenditures. 

After  the  figuring  of  these  detailed  costs  of  doing 
business  becomes  a  part  of  his  routine  work,  the  retailer 
will  find  that  the  keeping  of  them  is  more  than  a  mere 
policy.  The  use  of  accurate  costs  is  in  fact  a  principle — 
a  necessary  doctrine  which  if  avoided  either  retards 
normal  growth  or  brings  about  bankruptcy.  John 
Bellaire  of  Blaney  says  that  the  lack  of  accurate  knowl- 
edge of  this  sort  cost  him  thirty  thousand  dollars.  He 
paid  the  price  and  now  his  store  nets  a  fat  profit  every 
year.  Use  the  averages  here  given  to  find  where  you 


30  HOW  COSTS  ARE  RISING 


SHOE  STORE  COSTS  AN  AVERAGE  SHOE  STORE 

This  is  the  itemized  average   cost   of  These  figures  from  a  New  England  shoe 

retailing  shoes  set  for  the  country  by  the  store  fit  the  average  closely.    Three  and 

investigation.      Note  (1)  that  rents  are  one-half    turnovers   are    made    under    a 

high;  (2)  that  salaries  are  also  heavy,  pro-  mark-down  loss  of  about  nine  per  cent, 

portionately.    These  conclusions,  there-  Therefore,  the  owner  is  forced  to  realize 

fore,  follow:  (1)  that,  under  normal  mark-  through  the  stock  a  mark-up  close  to 

ups,  net  profits  are  weak;  (2)  that,  hence,  thirty -five  per  cent  in  order  to  get  a  sound 

your  success  demands  closer  buying  in  net  profit. 

styles,    frequent    re-ordering  of   in-stock  Rent s    778  13  or 

lines,  and  less  idle  tune.  Salaries 2,786.21  or  11.1< 

Rent 3.21%  Advertising 376.51  or    1.5< 

Salaries 10.51%  Heat  and  Light 225.91  or 

Advertising 1.65%  Delivery 75.30  or      .3* 

Heat  and  Light 1.10%  Supplies 100.40  or      .4' 

Delivery 46%  Insurance  and  Taxes.  .      301.21  or    1.2< 

Supplies 30%  General  Expenses 1,029.14  or    4.1 ' 

Insurance  and  Taxes 1.03%  Depreciation  and 

General  Expenses 4.36%  Shrinkage 150.61  or      .6% 

Depreciation  and  Shrinkage 50%  Bad  Debts 25.10  or      .1% 

Bad  Debts 10%  

Total  Percentage  of  Expenses  to 

Sales 23.22%  Total  Expense $5,848.52  or  23.3% 


stand,  next  fix  percentages  for  your  business  and  then 
get  it  into  the  running.  If  possible  cooperate  with  the 
other  dealers  in  your  town  and  see  that  they  are  not  sap- 
ping common  gross  profits  by  using  mark-ups  which  do 
not  make  a  fair  allowance  for  the  rising  cost  of  doing 
business.  C.  J.  Bicker,  in  Emporia,  and  Gorton  Rush- 
mer,  in  Pueblo,  for  example,  have  interested  their  fellow 
retailers  in  cooperation  to  the  benefit  of  the  profits  of  all. 
The  averages  that  are  given  on  pages*20  to  30,  when 
studied  in  connection  with  the  chart  on  page  31,  en- 
able the  manufacturer  also  to  cross-section  the  dis- 
tribution of  his  product.  Since  rising  costs  are  lead- 
ing the  retailer  to  buy  small  lots,  manufacturers  are 
faced  with  new  equipment  and  supply  problems  in  their 
efforts  to  handle  orders  smoothly.  Deliveries  become 
of  the  greatest  importance.  In  order  to  secure  quicker 
shipments,  the  larger  stores  are  either  building  factories 
or  guaranteeing  entire  capacities.  Marshall  Field  and 
Company,  Wanamaker  and  Filene  are  making  many  of 


FIGURES  FROM  1560  STORES 


31 


the  lines  they  sell.  The  small  retailer  can  be  shown 
through  salesmen  that  quicker  deliveries  mean  more 
equipment  and  be  told  of  the  manufacturers'  efforts  to 
adjust  their  plans  to  the  new  demands.  As  one  manu- 


RETAIL  MARK-UPS,  COSTS  AND  PROFITS 

m—^*~        •!•    i  ..  •^••••i 

Cost  ol  Doinjr  Businew 


FIGURE  II:  This  chart  shows  gross  mark-ups,  the  averages  of  figures 
from  579  concerns,  divided  into  costs  and  net  gains.  Since  only  one  turn- 
over is  represented,  the  net  profits  on  the  retailers'  investments  are  not  included 

facturer  puts  it,  ask  the  retailer  to  buy  only  the  styles 

his  market  demands;  guard  him  against  overstocking. 

Another  manufacturer  finds  it  profitable  to  send  a 

cost  accountant  once  a  year  to  each  retailer  represented 


32 HOW  COSTS  ARE  RISING 

on  his  books.  In  this  way  he  anticipates  conditions 
typified  by  the  experience  of  an  Indiana  clothier  who 
had  been  buying  a  standard  line  of  hats  direct  from  the 
maker,  usually  about  two  thousand  dollars'  worth  at  the 
beginning  of  a  season.  A  strike  closed  the  factory 
recently  and  deliveries  could  not  be  made.  Therefore, 
this  retailer  placed  a  small  hat  order — $256.25,  to  be 
exact — with  a  jobber.  To  his  surprise,  he  found  that 
this  supply  handled  his  demand  nicely,  until,  the  strike 
continuing,  he  could  duplicate  it  from  the  jobbing  house. 
He  then  saw  eight  turnovers  where  he  had  secured  one 
before  and  eight  times  his  former  profit  on  the  invest- 
ment. Now  the  manufacturer,  to  hold  his  trade,  is 
forced  to  handle  his  business  in  small  lots. 

Further,  if  it  is  agreed  that  prices  are  to  be  wisely 
set  for  the  counters  at  the  factories,  manufacturers  can 
protect  their  interests  by  knowing  what  it  costs  to  retail 
their  products.  Salesmen  may  help  retailers  who  are 
guessing.  It  is  the  man  with  his  expenses  well  in  hand 
who  safely  takes  up  the  precarious  game  of  price  cutting, 
for  his  profits  are  partly  possible  because  some  of  his 
competitors  are  guessing  in  their  costs  on  lines  and 
taking  too  heavy  a  profit  on  those  which  turn  quickest. 
He,  often  seeing  that  a  narrow  profit  will*  still  give  a  net 
gain  because  of  the  rapid  turnover,  cuts  a  fixed  price. 
Many  a  small  retailer  has  lost  his  savings  and  destroyed 
one  of  a  manufacturer's  outlets  for  the  want  of  standards 
against  which  to  check  his  expenses,  or  the  advice  of  a 
man  able  to  take  a  trial  balance. 

Many  a  wholesaler,  too,  will  profit  by  a  closer  knowl- 
edge of  exact  costs  of  doing  business  in  his  trade.  One 
large  Chicago  jobbing  house  recently  met  a  retailer's 
demand  for  small  shipments  by  rearranging  the  stock 
rooms  for  quick  order  filling.  They  also  explained  to  the 


FIGURES  FROM  1560  STORES 


33 


merchants  through  their  salesmen  that  small  orders  cost 
them  more  to  handle  and  that  returns  resulting  from 
poor  buying  are  expensive. 
Ask  the  retailer  to  know  his  cost  so  that  your  lines 


AVERAGE  C-QSTS  (QF_DOIN(J  BUSINESS 


roc 
.91 


FIGURE  III:  Comparison  of  this  chart  of  costs  with  that  on  page  31 
demonstrates  that  department  stores,  purchasing  for  rapid  clearances,  profit- 
ably overcome  high  costs  by  taking  small  net  gains  on  numerous  turnovers 

can  have  a  fair  showing  when  profit-figuring  time  comes 
round.  Credits  may  be  protected  by  helping  the  retailer 
to  a  knowledge  of  what  they  cost.  Several  manufac- 
turers have  cost  bureaus,  and  there  is  no  reason  why  the 


34 HOW  COSTS  ARE  RISING       / 

work  cannot  profitably  be  undertaken  by  the  wholesaler. 
He  can  assist  the  storekeepers  who  order  from  him  by 
placing  at  their  service  the  advice  and  knowledge  of  his 
staff  for  working  out  profits  or  costs.  One  of  the  largest 
wholesalers  in  the  country  has  an  office  given  over 
entirely  to  work  of  this  nature. 

Finally,  the  keenest  weapon  at  hand  for  use  against 
rising  costs  is  cooperation  of  manufacturer,  middleman 
and  retailer.  The  prosperity  of  one  is  impossible  if  the 
other  two  are  not  making  a  fair  profit.  The  conditions 
which  are  continually  driving  costs  upward  demand 
common  consideration  until  an  adjustment  fair  to  all 
is  reached.  The  sellers  of  groceries  at  wholesale  and 
retail  are  already  in  consultation,  and  the  manufacturers, 
wholesalers  and  retailers  of  shoes  have  come  together 
through  their  national  organizations.  By  such  affilia- 
tions for  the  interchange  of  opinions  and  facilities  within 
reasonable  limits  will  the  business  men  of  the  country 
who  make  or  handle  goods  be  able  to  adjust  themselves 
more  quickly  to  the  difficult  present-day  task  of  securing 
fair  gains  with  reduced  net  sales  profits. 


PART  II 

WHAT  IT  COSTS  TO  SELL 
THE  GOODS 


\ 


III 

THE  COST  OF  MAKING 
SALES 


READJUSTMENTS  are  taking  place  in  policies  and 
methods  of  distributing  goods.  In  certain  direc- 
tions the  wholesaler  sees  his  importance  diminishing. 
Just  as  evident  is  the  tendency  on  the  part  of  the  metro- 
politan merchant  to  make  his  own  goods.  And  -in 
another  field  some  retailers  think  they  are  losing  out 
against  the  chain  store  or  direct  selling. 

Every  owner  and  manager  realizes  these  conditions. 
The  wholesaler  gets  small  lot  orders,  the  manufacturer 
with  private  brands  confronts  substitution  and  price- 
cutting,  and  the  retailer  struggles  with  style  changes. 
The  problem  is  broader  than  business.  It  touches  the 
pocket  book  of  the  individual  consumer.  It  is  inter- 
woven with  standards  of  living  and  the  economic  develop- 
ment of  the  United  States. 

The  one  big,  tangible  fact  underlying  all  this  unrest  in 
distribution  is  rising  costs.  Everyone  knew  costs  were 
rising.  Many  had  records  within  their  own  concerns 
which  helped  them  hold  down  their  costs.  But  few  could 
see  these  standards  in  comparison  with  those  of  other 
owners  and  managers  in  the  same  and  different  lines. 
Now  that  a  group  of  such  standards  has  for  the  first 
time  been  brought  together,  salaries  and  wages  show  as 
the  highest  single  items  in  every  line  covered  by  an 


38 SELLING  EXPENSE 

investigation  which  has  tabulated  the  actual  costs  in 
nearly  one  thousand  retail  establishments.  Naturally, 
therefore,  examination  of  this  item  of  help,  as  compared 
with  reasonable  averages,  has  been  fruitful  of  savings 
and  increased  sales  effectiveness  in  many  stores. 

Losses  of  supplies  and  stock  worth  $439.34  from  each 
clerk's  routine  work  were  recently  discovered  by  John 
I.  Bellaire  after  he  had  carefully  tabulated  a  year's  leaks 
in  his  store  at  Blaney,  Michigan.  By  re- weighing  typical 
sales  without  warning,  and  establishing  the  most  econom- 
ical standards  for  the  use  of  supplies,  he  found  that  an 
eighteen-dollar-a-week  man  was  destroying  profits  equal 
to  forty-five  per  cent  of  his  wages.  Overweights  in  the 
everyday  grocery  lines  had  cost  Mr.  Bellaire  $375.38. 
For  instance,  his  average  salesman,  according  to  esti- 
mates based  on  the  losses  fixed  by  the  re-weighings  made 
at  random,  gave  away  sugar  invoiced  at  $19.50,  tea 
worth  $78.00  and  coffee  valued  at  $58.40.  Each  man 
also  used  about  a  pound  more  of  wrapping  paper  a  day 
than  was  necessary.  This  loss  cost,  at  three  and  one-half 
cents  a  pound,  $10.92  during  the  year.  The  use  of  paper 
bags  too  large  for  purchases  took  $21.84,  and  excessive 
generosity  with  twine  added  $31.20  to,the  total. 

That  by  actual  count  in  this  going  store  wasted  twine 
and  extra  half  ounces  should  bulk  into  hundreds  of  dol- 
lars within  a  year,  demonstrates  that  after  all  profits 
depend  largely  upon  the  cooperation  of  employees.  The 
pay  of  salesmen  in  over  a  thousand  stores  marketing 
twelve  standard  classes  of  products  averages  8.87  per 
cent  of  the  sales — the  largest  single  item  in  the  cost  of 
doing  business  at  retail.  More  important  than  this,  how- 
ever, is  the  fact  that  the  salesmen  handle  the  goods  and 
put  them  into  the  customers'  hands.  They  work  with 
the  four  storekeeping  requirements  which  measure  the 


SALES  WAGES  AND  QUOTAS 


39 


FIGURE  IV:     That  businesses  are  all  very  much  alike  is  shown  by  this 

chart  of  itemized  average  costs  in  six  standard  lines.     Rent,  salaries,  and 

advertising  in  every  case  take  the  major  portion  of  the  expenditures 

retailer's  profits — stock,  supplies,  time  and  service. 

The  salesman  who  stands  behind  a  counter  and  hands 
customers  what  they  ask  for  may  often  be  replaced  to 
advantage  by  a  mechanical  contrivance;  the  man  who 


40  SELLING  EXPENSE 


THE  EIGHT  INTEODUCTION 

Saleswoman  (turning  from  her 
last  customer  to  the  woman 
who  should  be  served  next)  : 
"Good  morning"  (waits  for 
customer  to  speak). 

Customer:     "I  want  a  suit." 


capably  advises  the  purchaser,  actually  merchandises  the 
small  bit  of  the  store's  stock  placed  in  his  control,  and 
in  other  ways  gives  life  to  the  service  which  his  employer 
advertises,  cannot  safely  be  displaced. 

Which  of  these  two  types  his  store  is  to  have  rests 
largely  with  the  retailer  himself.  He  hires  his  men  and 
is  responsible  for  their  training.  He  may  either  freely 
use  the  experience  of  others  who  have  studied  the 
handling  of  men,  or  check  his  clerks  against  actual  losses 
like  those  discovered  by  Mr.  Bellaire. 

Investigations  recently  made  among  retailers  in  four 
states  show  that  they  are  using,  either  consciously  or 
unconsciously,  common  methods  in  working  out  this 
responsibility  for  getting  more  profit  out  of  their  sales- 
men. Men  employing  thousands  and  men  paying  off 
only  one  or  two  on  Saturday  night  agree  that  to  secure 
the  best  results  from  a  salesman  he  needs  to  be  given 
the  right  attitude  toward  three  fundamental  conditions. 
These  merchants  expressed  their  ideas  in  different  words, 
but  the  underlying  thoughts  always  centered  on  the  same 
three  conditions. 

The  first  condition,  giving  the  salesman  an  idea  of 
what  is  going  on  in  the  store,  was  strongly  emphasized 


SALES  WAGES  AND  QUOTAS 


41 


THE  WRONG  INTRODUCTION 

Salesman;      "What    may    I    do 
for  you  today  ? ' ' 

Customer:      "Nothing     in     par- 
ticular— I  '11  just  look  around. ' ' 


by  one  of  four  brothers  who  have  made  an  Indiana  store 
pay  well  for  over  half  a  century.  "I  take  everybody 
in  the  store  into  my  confidence  in  regard  to  sales  and 
profits, ' '  he  says.  * '  Of  course,  I  only  do  it  in  a  general 
way,  but  I  go  far  enough  to  make  each  one  understand 
that  I  want  to  make  a  manager  of  him  some  day.  I 
tell  them  about  the  store  policy  and  in  that  way  stir 
their  ambition.  I  also  tell  them  about  the  advertising 
and  ways  to  meet  mail-order  competition. 

1 1  Every  human  being  has  a  desire  to  accomplish  some- 
thing and  I  make  use  of  that  desire.  My  clerks  are 
just  naturally  careful  when  I  explain  the  effect  losses 
will  have  on  their  own  wages,  if  carried  too  far,  and 
demonstrate  that  I  am  ready  to  overlook  mistakes  not 
of  the  heart.  If  I  make  changes  I  talk  over  the  condi- 
tions with  them.  They  always  help  me  buy  and  mark 
the  goods.  Therefore,  they  know  about  the  stocks  and 
why  the  prices  are  right.  They  pass  along  part  of  this 
knowledge  to  my  customers.  Only  the  other  day  I 
overheard  the  clerk  at  the  far  counter  explaining  to  a 
customer  that  because  there  are  ten  picks  in  our  carpets 
they  will  wear  longer  than  usual.  He  got  hold  of  that 
fact  when  I  had  him  in  to  talk  to  the  wholesale  carpet 


SELLING  EXPENSE 


THE   EIGHT   DISPLAY 

Salesman:  "Have  you  any  particu- 
lar desires — say  in  color,  style  or 
material?"  (Studies  character  of 
customer  and  secures  size  with  tape 
measure,  so  as  to  avoid  stocks 
which  do  not  include  the  size.) 

Customer:  "I  haven't  decided,  but 
I  like  blues  with  pencil  stripes. ' ' 


salesman.  Our  selling  wages  are  under  five  and  a  half 
per  cent  of  our  sales  and  it's  largely  because  we  get 
close  to  our  people  and  let  them  know  what's  going  on 
in  the  store." 

That  the  clerks  need  to  understand  their  responsibility 
is  the  second  condition  declared  to  be  fundamental. 
The  owner  of  one  of  the  largest  stores  in  Indianapolis 
noticed  some  imported  match  safes  in  his  bargain  base- 
ment. He  had  last  seen  them  in  the  jewelry  department. 
He  examined  one  of  the  safes  and  failed  to  find  a  place 
for  striking  matches. 

" Where  do  you  suppose  they  scratch  the  matches?" 
he  asked  the  girl  at  the  counter. 

"I  don't  know,"  she  admitted.  "Anyway,  they  do 
not  sell  very  well." 

The  assistant  merchandise  manager,  when  called  to 
the  counter,  was  himself  unable  to  show  how  matches 
could  be  struck  on  the  imported  safe.  Finally,  the  pro- 
prietor found  a  catch  which  opened  a  vise-like  attach- 
ment designed  to  make  striking  the  matches  less  trouble- 
some. 

'  *  Later  at  a  meeting  I  told  our  entire  sales  force  about 
that  match  safe,"  he  says.  "I  explained  that  the  selling 


SALES  WAGES  AND  QUOTAS 


43 


THE  WEONG  DISPLAY 

Salesman:  "Here  are  some  of 
the  newest  coats." 

Customer:  (After  trying  on  sev- 
eral coats.)  "Have  you  any- 
thing in  blue  with  stripes?" 


point  had  not  been  discovered  and  thereby  mark-downs 
resulted,  until  finally  the  goods  landed  in  the  bargain 
basement. 

"The  incident  gave  me  an  opportunity  to  impress  on 
the  clerks  their  responsibility.  I  think  no  retailer  should 
overlook  a  chance  to  do  likewise.  I  tell  my  people  that 
they  practically  control  the  fate  of  the  store ;  that  a  lost 
sale  often  means  the  loss  of  many  future  sales  that  might 
be  made  to  the  customer.  I  put  just  as  much  responsi- 
bility on  the  clerks  as  they  can  carry  and  try  to  increase 
their  capacity  for  it. 

'  *  I  make  them  understand  that  I  expect  them  to  keep 
our  mailing  lists  live  and  add  customers  to  our  books. 
I  show  them  that  they  are  valuable  distributing  agents, 
personally  representing  me.  Every  now  and  then  I 
recall  to  them  that  Marshall  Field  once  worked  behind 
a  counter.  I  give  them  cards  carrying  a  motto  like: 
' Don't  wait  to  be  told — think.'  Of  course  I  remember 
that  most  of  my  clerks  have  not  the  same  point  of  view 
on  my  business  that  I  have,  but  I  make  it  clear  that  it  is 
to  their  advantage  to  represent  the  house  in  every  way. ' ' 

The  third  of  the  conditions  found  helpful  in  making 
clerks  worth  more  prescribes  that  they  be  materially 


44 


SELLING  EXPENSE 


THE  EIGHT  CLOSE 

Saleswoman:  (Customer  has  purchased.) 
''Would  you  prefer  to  have  the  hat  de- 
livered, or  would  you  like  to  have  it  at 
once,  by  taking  it  with  you?"  (Empha- 
sizes last  seven  words  in  order,  if  possible, 
to  reduce  delivery  expenses  and  still  sat- 
isfy the  customer.)  "  There  are  some 
new  suits  which  go  well  with  this  hat. 
If  you  like,  I  '11  go  with  you  to  the  suit 
department. ' ' 

Customer :  ' i  Thanks,  I  '11  take  a  glance  at 
them. ' ' 


interested  in  the  store's  profits.  This  is  usually  done 
by  giving  them  some  of  the  profits  in  forms  other  than 
wages,  such  as  bonuses,  percentages  and  commissions, 
or  a  direct  share  of  the  net  profits.  An  Iowa  shoe  store 
has  cut  1.7  per  cent  off  the  cost  of  doing  business  by 
paying  the  salesmen  ten  dollars  a  week  and  a  commis- 
sion of  from  five  to  ten  per  cent  on  their  sales,  instead 
of  from  fifteen  to  twenty-five  dollars  a  week  as  straight 
wages.  A  Minnesota  dealer  raises  the  pay  of  his  men 
arbitrarily  until  they  have  been  with  him  five  years  and 
after  that  gives  them  one  per  cent  of  their  sales.  He 
has  the  veterans  out  to  his  home  on  Christmas  day  to 
get  their  percentage  checks.  One  of  the*  largest  stores 
in  Boston  divides  half  of  the  net  profits  among  the 
employees  and  Frank  M.  Low  is  working  out  the  same 
plan  in  his  shop  at  Portland,  Maine. 

Getting  the  most  out  of  clerks,  after  the  three  funda- 
mentals of  store  knowledge,  responsibility  and  profit 
have  been  cared  for,  becomes  largely  a  matter  of  fair 
dealing.  The  canvass  of  retailers  in  several  states  showed 
that  they  consider  it  wise  carefully  to  avoid  any  appear- 
ance of  paternalism.  They  tell  their  employees  that 
they  are  glad  to  hire  them  and  want  them  to  be  glad 


SALES  WAGES  AND  QUOTAS 


45 


THE    WRONG    CLOSE 

Salesman:  (Gives  his  atten- 
tion to  rearranging  the  stock, 
rather  than  to  the  customer 
who  has  purchased.)  "Any- 
thing else  today?" 

Customer:  (Who  is  waiting  to 
have  the  purchase  wrapped.) 
"No,  I  guess  not." 


to  take  the  work.  They  use  every  opportunity  to 
encourage  clerks  to  hand  in  suggestions  or  come  to  an 
executive  with  complaints.  They  avoid  discouraging 
employees  or  reprimanding  them  before  others.  Eighty- 
six  per  cent  of  these  merchants  stated  that  they  prefer, 
when  possible,  to  mold  their  men  instead  of  hiring  them 
" ready  made,"  because  previous  experience  may  have 
been  secured  from  one  or  another  of  the  generous  pro- 
portion of  retailers  who  fail.  Without  an  exception  they 
familiarize  themselves  closely  with  the  work  they  expect 
the  clerks  to  do;  treat  their  selling  force  with  the  con- 
sideration they  themselves  would  desire  from  superiors ; 
and  make  the  work  of  the  cheapest  employees  largely 
routine. 

Is  it  possible  to  figure  what  percentage  of  his  sales 
a  clerk  should  cost,  handled  according  to  these  successful 
methods  ?  Not  unless  individual  conditions  are  carefully 
considered.  For  instance,  a  shoe  salesman  is  known  to 
have  sold  thirty  thousand  dollars'  worth  of  shoes  a  year 
at  a  very  expensive  location  in  New  York.  Yet  two  men 
and  a  boy  sold  at  the  rate  of  $194,000  a  year,  one  half 
on  charge  accounts,  in  a  little  " woods  store."  But  it 
took  them  from  fourteen  to  sixteen  hours  a  day.  Another 


46  SELLING  EXPENSE 


THE  EIGHT  LEAVE-TAKING 

Salesman:  (Customer  has  purchased 
a  flashlight.)  ''You  will  probably 
be  interested  in  our  new  sporting 
goods  department.  If  you'll  give 
my  card  to  one  of  the  sporting 
goods  salesmen,  he'll  be  glad  to 
show  you  about.  If  you'll  just 
let  me,  I  '11  be  glad  to  'phone  you 
a  day  or  so  before  new  attractions 
arrive."  (Obtains  'phone  number.) 

Customer :     ' '  Thanks. » » 


country  store  by  keeping  open  until  eight  at  night  sells 
$65,000  worth  of  stock  a  year  with  one  girl  to  help  the 
owner,  while  it  requires  six  men  to  handle  trade  worth 
$120,000  in  a  neighboring  city.  A  thousand  miles  from 
the  city  where  these  six  men  work,  two  men  are  selling 
within  five  thousand  dollars  of  their  record  at  a  sales 
expense  of  only  5.5  per  cent. 

Therefore,  it  is  impossible  to  say  that  a  certain  silk 
salesman  should  be  paid,  let  us  say,  seven  per  cent  of 
his  sales.  But  it  is  possible  to  fix  general  averages  for 
the  selling  expense  in  various  lines  and  to  find  for  com- 
parison the  cost  of  handling  a  yard  of  silk  in  any  par- 
ticular store.  It  is  possible  to  show  that  the  most  meagre 
salary  may  be  the  most  expensive  on  the  payroll  and 
that  the  salesman  who  is  paid  heaviest  in  proportion  to 
sales  is  doing  the  most  to  guard  the  store's  reputation, 
watch  its  stock  and  preserve  neatness.  A  New  England 
department  store  owner  paid  until  last  year  only  $35  a 
week  to  a  buyer  in  charge  of  an  investment  of  $35,000. 
At  the  suggestion  of  a  shoe  manufacturer  he  hired  a  man 
worth  the  $50  a  week  he  asked.  The  sales  increased  16.5 
per  cent. 

The  comparison  of  entire  store  payrolls  from  all  over 


SALES  WAGES  AND  QUOTAS 


47 


THE  WKONG  LEAVE-TAKING 

Saleswoman:  (Customer  has  purchased 
and  given  directions  for  delivery.) 
' '  Good  day.  Drop  in  again. ' ' 

Customer :      ' '  Good    day. ' ' 


the  country  with  resulting  sales  may  usually  be  relied 
upon  to  counteract  individual  circumstances.  Standards 
secured  in  this  way,  for  instance,  supply  a  basis  upon 
which  it  is  possible  to  estimate  the  direct  cost  of  selling 
under  normal  conditions.  To  take  an  example,  investiga- 
tion establishes  six  per  cent  of  the  sales  as  a  standard 
selling  payroll  for  large  stores  in  New  York,  Chicago 
and  Boston.  However,  it  would  be  unfair  to  discharge 
a  clerk  in  one  of  these  cities  as  too  expensive  because  his 
wages  took  ten  per  cent  of  his  sales  unless  a  close  exam- 
ination of  his  record  had  been  made.  He  might  be 
selling  a  small  amount  of  stock  but  a  great  deal  of  serv- 
ice leading  to  repeat  orders.  Again,  he  may  not  have 
been  handled  according  to  the  three  fundamental  condi- 
tions believed  by  the  merchants  in  four  states  to  underlie 
the  most  satisfactory  results  from  a  selling  force.  Never- 
theless, at  least  one  merchant  has  determined  that  if  the 
entire  sales  payroll  in  his  store  runs  over  eight  per 
cent,  danger  is  ahead  in  nine  cases  out  of  ten. 

Investigation  indicates  that  this  six  per  cent  standard 
direct  selling  expense  applies  to  the  department  stores 
of  the  country  as  a  general  class,  although  the  smaller 
sales  volumes  encountered  in  the  more  modest  firms  drive 


48 SELLING  EXPENSE 

the  average  up  to  6.52  per  cent.  This  is  the  lowest 
percentage  set  for  retail  sales  payrolls,  if  mail  order 
houses  doing  most  of  their  selling  through  catalogs  are 
excepted.  Mail  order  concerns  average  their  selling 
expense  at  3.32  per  cent  of  their  sales. 

In  department  stores  the  relation  between  sales  and 
the  wages  paid  to  clerks  varies  with  the  size  of  the  cities 
and  the  nature  of  the  stocks.  For  instance,  here  are  per- 
centages for  an  annual  sales  volume  of  $225,000  in  a  city 
of  twenty  thousand  compared  with  corresponding  facts 
from  a  store  selling  over  $18,000,000  worth  of  merchan- 
dise a  year  in  one  of  the  three  largest  cities  in  the 
country : 

Small  Large 

Department  City  City 

Carpets 16%  8% 

Corsets    5.5%  5% 

Hosiery    6.5%  6% 

Toilet  goods 6%  7% 

Gloves 6%  6% 

Jewelry  and  leather  goods 9%  7.5% 

Notions  10%  9% 

Dress    goods 10%  9% 

Millinery    11%  9% 

It  is  natural  that  wages  for  selling  should  also  be  low 
in  proportion  to  sales  in  grocery  stores  and  variety 
shops  because  these  lines  are  characterized  by  very  fre- 
quent small  sales.  Wages  of  clerks  in  groceries,  investi- 
gation showed,  average  8.46  per  cent  of  the  sales  and 
8.86  in  variety  shops. 

In  the  southwest,  for  instance,  there  is  a  variety  store 
owner  who  averages  sales  amounting  to  $60  a  working 
day  and  hires  only  three  helpers.  Girls  earning  from 
three  to  five  dollars  a  week  in  his  store  regularly  average 
daily  sales  of  from  twelve  to  sixteen  dollars  a  day. 

For  implements,  vehicles,  clothing  and  dry  goods,  the 


SALES  WAGES  AND  QUOTAS 49 

direct  selling  expense  runs  higher.  The  standards  which 
investigation  set  for  these  three  lines — 9.41  per  cent  for 
vehicles  and  implements,  9.49  for  clothing  and  9.65  per 
cent  for  dry  goods — are  neither  notably  high  nor  low. 
Local  conditions,  of  course,  frequently  make  it  possible 
to  secure  percentages  below  these  standards.  There  is  a 
small  dry  goods  store  in  an  Indiana  town  of  five  thousand 
which  annually  markets  close  to  $25,000  worth  of  mer- 
chandise with  a  wage  expense  of  7.5  per  cent.  The 
owner  draws  twenty  dollars  a  week  for  his  share  in  the 
selling  and  pays  a  man  six  dollars  a  week  and  two  girls 
five  dollars  each. 

WHEN   the  payroll  grows  too   large  the  merchant 
needs  to  know  two  things:  how  much  too  large  it 
is  and  just  how  other  men  have  overcome  the  difficulty. 

The  cost  of  the  sales  force  exceeds  ten  per  cent  of 
the  sales  in  four  lines  comprising  a  group  which  includes 
the  highest  retail  selling  wages  in  proportion  to  the 
trade  secured.  Retailers  of  hardware,  investigation 
established,  spend  10.11  per  cent  of  their  sales  to  pay 
salespeople;  shoe  distributors  10.51  per  cent;  druggists 
10.95;  and  jewelers  10.96  per  cent.  The  unusual  rela- 
tion of  behind-the-counter  wages  to  sales  in  these  lines 
is  in  part  explained  by  the  fact  that  purchases  of  hard- 
ware, shoes  and  jewelry  are  comparatively  infrequent. 
The  druggist,  on  the  other  hand,  makes  numerous  sales 
but  pays  his  prescription  men  more  than  a  usual  retail 
wage.  There  are  many  jewelers  who  spend  above  the 
average  for  store  help.  They  probably  shoulder  the 
record  retail  sales  costs.  For  instance,  wages  alone  cost 
a  jeweler  in  a  town  of  nine  thousand  fifteen  per  cent 
of  his  sales. 

When   the   relation   of   wages  to  the   sales  volume 

4 


50 SELLING   EXPENSE 

becomes  abnormal,  as  in  this  jeweler's  shop,  careful 
retailers  investigate  for  causes  and  attempt  to  secure 
normal  conditions.  Since  the  profitable  salesman 
markets  both  service  and  stock,  reductions  in  the  pro- 
portion of  his  sales  taken  by  pay  are  possible  either 
through  these  two  values,  which  he  sells,  or  the  two 
equivalents  of  money  used  by  him  in  making  any  trade — 
time  and  supplies.  The  retailer,  therefore,  who  finds 
it  necessary  to  reduce  the  amount  of  his  sales  taken  by 
the  payroll,  watches  goods,  time,  supplies  and  service. 

He  may,  as  Mr.  Bellaire  did,  check  carefully  on  over- 
weights and  the  handling  of  paper  or  twine.  In  any  but 
the  most  carefully  made  mechanical  scales,  there  is  fric- 
tion at  the  pivot  points  when  a  sale  is  weighed.  Natu- 
rally, this  friction  increases  as  the  load  becomes  heavier, 
and  must  finally  be  surmounted  by  the  last"  ounce. 
Therefore,  in  order  to  overcome  the  friction  quickly, 
there  is  a  temptation  to  be  over  generous.  When  the 
operating  expense  mounts  far  into  the  gross  profits 
a  slight  overweight  will  swallow  the  entire  net  profit. 
For  instance,  an  overweight  of  one  half  an  ounce  on 
each  pound  sale  made  out  of  a  hundred-pound  purchase 
of  sugar  would  reduce  to  four  cents  an  anticipated  net 
profit  of  twenty-five  cents.  Loss  of  half  an  ounce  on  a 
half  pound  weighing  is  equivalent  to  6!25  per  cent,  or 
very  close  to  the  average  retailer 's  profit. 

Over  measures  are  overweights  applied  to  yard  goods. 
The  majority  of  retailers  instruct  their  sales  forces  to 
pull  a  thread  when  cutting  valuable  bolts,  in  order  to 
avoid  leaks  through  uneven  edges.  If  there  is  time, 
losses  as  great  as  those  common  in  pound  sales  may  be 
saved  by  requiring  precautions  when  measuring  from 
the  cheaper  bolts,  for  cutting  by  the  eye  usually  means 
a  loss  of  an  eighth  of  an  inch  or  more.  Also,  without 


SALES  WAGES  AND   QUOTAS 51 

the  assistance  of  some  means  of  mechanical  computa- 
tion, there  is  danger  of  error  in  making  the  hundreds 
of  calculations  involving  fractions  which  oc«ur  in  ordi- 
nary price  ranges.  For  instance,  between  one  and  six- 
teen ounces  there  are  eight  hundred  computations,  if 
the  prices  range  from  one  to  fifty  cents  a  pound  or 
yard,  and  all  but  forty-eight  of  these  involve  a  fraction. 

Although  watchfulness  along  these  lines  often  helps 
the  retailer  to  keep  up  with  rising  costs  by  getting  better 
returns  from  the  sales  force,  time  is  frequently  more 
valuable  than  stock.  Furthermore,  many  merchants 
believe  that  the  only  way  left  for  reducing  expenses 
is  to  get  more  done  in  the  same  time.  In  an  effort  to  stop 
leaks  of  minutes  as  well  as  of  goods,  they  apply  to 
retailing  the  time  and  fatigue  studies  made  for  the 
manufacturer.  First  of  all,  they  eliminate  from  the 
clerk's  duties  all  detail  that  can  be  handled  by  cheaper 
hands.  So  that  attention  may  be  concentrated  on  mov- 
ing stock,  porters  and  stock  boys  do  a  heavy  portion  of 
the  work  customarily  handled  by  retail  salesmen  forty 
years  ago.  This  leaves  the  clerk  free  to  get  new  argu- 
ments from  advertisements,  traveling  salesmen,  study 
courses  conducted  by  buyers,  and  inspections  of  com- 
peting stocks.  Retailers  who  plan  to  eliminate  wasted 
moments  explain  to  their  clerks  that  this  freedom  from 
detail  places  upon  the  selling  force  a  responsibility  for 
a  knowledge  of  profitable  lines,  mailing  lists,  mark-ups, 
methods  for  offsetting  poor  buying,  and  advanced  plans 
for  handling  customers. 

Time  is  also  frequently  conserved  by  a  rearrangement 
of  fixtures  or  stock.  "All  you  can  save  on  nowadays 
is  time/'  says  a  wholesale  druggist.  "I  am  fixing  over 
my  stockrooms  so  that  the  order  fillers  can  sit  at  desks 
and  direct  a  lot  of  boys  hired  at  low  rates.  Before,  they 


52 SELLING  EXPENSE 

did  the  running  around  themselves.  It's  up  to  the  mer- 
chant to  keep  his  stock  arranged  so  that  the  salesman 
can  get  goods  quickly  and  to  supply  fixtures  which  make 
selling  as  easy  as  possible. ' '  One  eastern  clothing  house 
saves  salesmen's  time  by  maintaining  a  card  rack  which 
shows  the  sizes  in  stock  by  colors,  and  a  western  firm 
trains  the  clothing  clerks  to  work  in  the  neighboring 
shoe  section  when  it  is  over-crowded. 

TIME  and  supplies  are  probably  the  most  important 
of  the  equivalents  for  money  handled  by  employees 
These  methods  show  how  to  better  the  returns  from  them 

Although  it  is  possible  to  use  successfully  these  in- 
direct methods  for  saving  valuable  moments,  it  has 
seldom  been  found  advisable  directly  to  dock  clerks 
for  errors  or  lost  time.  A  New  Jersey  retailer  who 
has  strong  views  on  the  advisability  of  charging  em- 
ployees for  wasting  time  says,  "We  do  not  fine  our 
salespeople  under  any  circumstances.  They  are  required 
to  fill  out  a  'blunder  slip'  when  they  make  mistakes  or 
arrive  late  with  no  reasonable  excuse.  These  slips  are 
tabulated  by  the  employment  office  for  each  clerk  in 
such  a  way  that  the  number  of  faults  of  each  kind  can 
be  shown.  We  also  print  in  the  store  pape*  the  numbers 
of  the  clerks  who  have  made  errors  and  tabulate  mis- 
takes for  the  entire  store.  When  a  clerk  goes  too  far, 
discharge  of  course  follows  if  reprimands  are  not 
heeded." 

Supplies,  the  third  money  equivalent  handled  by  the 
sales  force,  are  usually  wasted  because  clerks  do  not 
understand  values.  To  get  the  most  out  of  salesmen  who 
are  wasteful  with  supplies  generally  requires  only  that 
they  be  shown  the  loss,  supplied  with  standards  which 
fix  the  most  economical  quantities  and  offered  an  incen- 


SALES  WAGES  AND  QUOTAS 53 

live  for  watchfulness.  For  instance,  wrapping  paper 
bills  have  been  reduced  5.4  per  cent  in  a  large  depart- 
ment store  by  cutting  the  paper  into  standardized 
lengths  and  specifying  definite  sizes  for  the  different 
lines.  In  the  same  store  prizes  of  from  thirty  to  fifty 
dollars  are  annually  awarded  to  those  of  the  delivery 
automobile  drivers  who  show  the  least  expensive  repairs. 
The  manager  of  a  small  commissary  offers  attractive 
pocket  knives  as  prizes  for  the  discovery  of  new 
economies,  and  several  hundred  stores  now  maintain  sug- 
gestion boxes  through  which  clerks  may  compete  for 
dollar  rewards. 

Since  it  frequently  costs  five  dollars  to  get  a  new  cus- 
tomer through  the  doors  of  a  store,  the  clerk  is  valuable 
who  obtains  favorable  attention  for  the  service  attrac- 
tions which  bring  repeat  orders  when  competition  is 
close.  In  order  that  better  returns  may  result  from 
the  selling  payroll,  many  merchants  instruct  their  clerks 
in  the  value  of  service  and  urge  them  to  sell  it  as  they 
would  stock.  One  store  in  New  England,  for  instance, 
found  that  salesmen  frequently  sold  rubbers  unsuitable 
for  the  customers'  shoes.  An  expert  was  immediately 
engaged  to  analyze  the  stock  and  show  the  clerks  which 
styles  of  rubbers  wore  the  longest  with  the  various  lasts. 
The  salesmen  in  their  turn  passed  this  knowledge  on  to 
the  customer  by  explaining  that  the  rubbers  could  not 
be  expected  to  wear  well  if  frequently  shifted  from  one 
style  of  last  to  another. 

The  best  reward  for  efforts  to  improve  the  service 
offered  customers  often  comes,  however,  through  care- 
fully instructing  clerks  about  the  goods  so  that  they 
may  offer  valuable  advice  to  customers.  A  large  eastern 
store  requires  the  buyers  to  hold  classes  for  the  clerks 
in  their  departments  and  outline  the  manufacturing 


54 SELLING  EXPENSE 

process  and  the  quality  behind  each  article  in  stock. 
When  paper  felt  and  asphaltum  linoleum  came  on  the 
market  at  a  new  price,  the  clerks  in  this  store  were  told 
how  the  two  grades  are  made.  Thus  having  at  their 
fingers'  ends  the  processes  underlying  the  construction 
of  the  two  lines,  they  were  able  to  advise  customers 
carefully. 

Although  more  attractive  returns  may  be  obtained  from 
the  total  clerk  hire  by  the  various  methods  described, 
after  all  the  most  satisfactory  economies  result  from  get- 
ting close  to  the  salesmen's  ambitions.  If  clerks  are 
given  the  same  rewards,  in  proportion  to  their  positions, 
which  satisfy  their  superiors,  loyalty  will  result.  Loyalty 
brings  savings  as  a  matter  of  course;  it  gets  better 
returns  out  of  the  clerks  through  unasked  efforts.  There 
are  more  people  engaged  in  selling  than  in  making,  more 
behind  the  counters  than  in  the  factories,  and  individual 
economies  cheerfully  practiced  by  each  would  supply 
savings  beneficial,  in  the  aggregate,  to  the  nation.  C.  C. 
Jackson,  who  runs  a  commissary  in  Arkansas,  has  the 
right  idea — he  says,  "Let  your  clerks  grow.  If  they 
can  grow  to  be  managers  you  are  that  much  better  off, 
for  you  have  that  much  more  power  in  your^  hands." 


IV 

HOW  MUCH  TO  PAY 
FOR  RENT 


LAND  values  increase  two  hundred  dollars  a  square 
foot  between  a. point  about  half  way  down  Winter 
Street  in  Boston  and  the  crowded  corner  at  Washington 
Street — only  a  moment's  walk.  A  chair  added  to  the 
counter  equipment  of  the  corner  store  uses  space  worth 
over  a  thousand  dollars. 

During  the  fall  of  1912  a  manufacturer  of  billiard 
tables  took  a  short  lease  on  this  shop,  subject  to  can- 
cellation. His  friends  believed  the  rent  would  swamp 
him,  because  comparatively  few  people  are  on  the  market 
for  billiard  tables. 

He  argued  that  if  one  passerby  out  of  ten  thousand 
came  in,  he  could  make  money.  Within  a  week  he  had 
taken  more  orders  than  the  factory  could  handle  con- 
veniently; after  two  weeks  he  was  forced  to  cancel  the 
lease  because  his  plant  could  not  fill  the  orders  fast 
enough. 

Rentals  supply  two  needs,  a  roof  and  a  location. 
High  rents  undertake  to  give  a  good  roof  and  an  un- 
usually favorable  location.  They  justify  themselves  by 
duplicating  for  one  line  or  another  this  manufacturer's 
experience  with  his  billiard  tables. 

Dense  crowds  are  tapped  and  if  among  half  a  million 
one  in  a  thousand  buys,  sales  are  heavier  than  if  a  pur- 


56 SELLING  EXPENSE 

chaser  came  from  every  dozen  in  a  crowd  of  five  thou- 
sand. By  carrying  comparatively  small  stocks  and 
quickly  selling  them  out  clean  to  large  crowds,  an  aver- 
age of  seven  or  eight  turnovers  a  year  through  hundreds 
of  departments  may  be  secured. 

When  a  small  net  profit  is  taken  on  each  of  these 
turns  a  fair  net  profit  on  the  entire  volume  is  possible 
at  low  prices.  It  is  a  case  of  building  a  big  profit  with  a 
number  of  small  profits. 

Therefore,  manufacturers  looking  for  distributing 
stations  or  branch  house  locations  and  retailers  who 
rent  the  most  expensive  locations  pit  against  the  high 
rentals  their  ability  to  intensify  merchandising  until 
stocks  turn  quickly.  One  of  them  may  work  with  a 
half  million  in  cash,  sell  three  millions  and  a  half  a  year, 
pay  the  landlord  a  rent  that  averages  four  hundred  dol- 
lars a  business  day,  and  take  four  per  cent  net  on  a 
turnover.  He  makes  a  net  profit  of  twenty-eight  per 
cent,  which  is  more  satisfactory  than  two  turnovers  at 
ten  per  cent. 

Since  crowds  may  or  may  not  contain  purchasers  for 
certain  stocks,  these  retailers  who  pay  heavily  for  loca- 
tion run  abnormal  risks.  They  undertake  to  buy  for 
quick  turnovers,  which  is  the  most  difficult  task  in 
merchandising,  and  also  to  judge  the  purposes  of  the 
thousands  passing  the  store  they  select. 

When  a  premium  is  paid  to  reach  crowds  that  are  not 
prospects,  disaster  usually  follows.  A  retailer,  investi- 
gation shows,  goes  to  the  wall  every  other  day  because 
his  rent  does  not  attract  a  paying  trade. 

Within  a  few  blocks  of  the  Boston  corner  which  sold 
billiard  tables  faster  than  four  salesmen  could  fill  out 
contracts,  a  large  department  store  has  not  made  money. 
It  is  off  the  shoppers '  path  by  less  than  two  thousand 


LOCATION  AND  RENT 57 

feet.  A  jeweler  who  failed  to  study  the  crowds  passing 
a  busy  corner  in  New  York,  signed  a  lease  for  it  at  a 
rental  which  is  one-tenth  for  roof  and  nine-tenths  for 
location.  Within  a  week  after  moving  in  his  stock  he 
found  ninety  per  cent  of  the  passing  thousands  to  be 
hurried  business  men,  uninterested  in  jewelry.  He  is 
keeping  open  nights  now  until  ten  o'clock  in  a  vain 
effort  to  pay  his  rent,  and  watching  for  an  opportunity 
to  sublease. 

OELECTING  a  location  is  a  vital  problem.  By  the 
O  methods  here  described  some  succeed  in  low-priced 
sections  while  others  make  good  on  expensive  sites. 

To  avoid  like  blunders,  those  who  make  high  rentals 
pay  study  and  number  the  crowds  surging  by  the  stores 
they  plan  to  rent.  The  United  Cigar  Stores  Company 
desires  to  be  near  thousands  of  men ;  Mr.  Childs,  who 
controls  a  great  many  restaurants,  wants  to  reach  hun- 
dreds of  hungry  people.  Both  a  vice-president  of  the 
United  Cigar  Stores  Company  and  Mr.  Childs  considered 
the  crowded  Boston  corner,  but  decided  that  the  risk 
was  too  great  for  their  businesses.  Thousands  passed, 
but  they  were  in  the  majority  of  instances  shoppers, 
and  shoppers  may  or  may  not  be  hungry  or  smokers. 
Therefore  the  corner  was  cut  into  a  number  of  small 
shops  which  can  handle  goods  interesting  to  many 
shoppers. 

Now  between  this  corner  and  the  store  that  has  not 
made  money  there  is  a  block  which  rents  for  much 
less  than  the  corner  and  yet  taps  the  stream  of  pur- 
chasers. The  man  who  picked  this  block  for  his  store 
quickly  made  a  fortune,  bought  the  first  large  steam 
yacht  to  fly  the  flag  of  a  Boston  club,  and  continues  to 
secure  exceedingly  attractive  net  profits.  There  are 


58 


SELLING  EXPENSE 


Percentage  of  Sales  Spent  on 

Rent 

5— 

i  3* 

HidH 

BBB 

utiu 

BBB 

E 

3-1 

2—  = 

dbb 

RRR 

f  21 

Jj 

I 

| 

1 

^ 

Drugs                                   Jewelry 

Furniture 

FIGURE  V:  The  stores,  when  matched  against  the  percentage  scales  at 
each  end  of  this  figure,  represent  the  average  rentals  paid  the  landlord  by 

corresponding  locations  in  each  city  or  town — stores 
close  to  the  shopping  center  which  rent  at  a  fair  charge 
for  a  roof  and  less  than  the  maximum  rate  for  an 
opportunity  to  reach  the  right  crowds. 

These  shops  offer  a  happy  medium  between  the  rapid 
stock  turns  required  to  pay  the  highest  rentals  and 
the  sluggish  sales  volumes  obtained  at  locations  that  pro- 
vide little  more  than  roofs. 

Therefore,  retailers  who  plan  partly  to  keep  up  with 
rising  costs  by  locating  favorable  rents*  watch  for  a 
chance  to  lease  them.  After  studying  the  industries 
in  the  vicinity,  the  resources  of  the  surrounding  country, 
the  wealth  represented  by  the  banks,  the  appearance  of 
the  streets  and  the  prosperity  of  possible  competition, 
they  figure  the  advantages  of  the  community  itself. 
Next,  after  talking  with  bankers  or  credit  men,  they 
pick  locations,  and  where  there  is  a  favorable  answer 
to  the  question  they  ask  about  each  vacant  shop,  "How 
many  have  failed  here?"  bargains  are  not  driven  too 
closely,  for  they  do  not  believe  a  slight  variation  one 


LOCATION  AND  RENT 


by  Six  Representative  Groups 


retailers  in  the  six  lines.  The  merchants  handling  furniture,  jewelry  and 
drugs  pay  heavy  rent,  the  first  for  space  and  the  other  two  for  location 

way  or  the  other  to  be  important,  if  the  right  store  is 
involved. 

The  manufacturers'  and  the  jobbers'  rents  also  buy 
the  use  of  roofs  and  locations.  However,  transporta- 
tion and  labor  costs  usually  decide  the  value  of  the  prop- 
erty they  rent,  instead  of  the  desires  controlling  those 
who  pass  the  door.  A  southern  manufacturer  who  has 
heavy  sales  in  two  large  cities  found  the  rental  best 
suited  to  his  desires  in  a  town  midway  between  the 
two  main  markets  and  on  the  connecting  railway.  An 
eastern  dealer  in  groceries  at  wholesale  recently  moved 
to  a  building  near  two  railroads,  a  canal  and  a  new  sub- 
way extension,  because  he  wanted  good  transportation 
coupled  with  facilities  which  made  it  easy  for  out-of- 
town  buyers  to  reach  his  display  rooms  quickly. 

What  is  a  fair  percentage  of  sales  to  pay  for  these 
locations  which  reach  the  right  crowds  and  avoid  extreme 
rentals  ?  What  have  other  men  in  your  line  paid  ?  How 
does  the  kind  of  goods  handled  affect  the  rent?  Manu- 
facturer's and  jobbers  desire  to  know  what  the  average 


60 SELLING  EXPENSE 

successful  retailer  pays  for  his  store  in  order  that  they 
may  help  customers  who  pay  too  much  or  too  little. 
Retailers  want  to  know  so  that  they  may  adjust  their 
expenditures  to  standards  and  find  the  rent  which  builds 
the  sales  volume  at  a  profit. 

The  size  of  the  stocks  carried  and  the  class  of  trade 
handled  fix  the  averages  for  the  different  lines  within 
wide  limits  which  leave  individual  cases  to  be  decided 
by  local  conditions.  Mail  order  houses  naturally  pay 
low  rents,  for  they  need  only  a  satisfactory  roof  near 
favorable  transportation  facilities.  They  are  not  in- 
terested in  expensive  locations.  Investigation  shows  that 
mail  order  concerns  secure  satisfactory  light,  space  and 
transportation  for  very  slightly  over  one-half  of  one  per 
cent  of  their  sales. 

Groceries  and  vehicle  or  implement  stores  are  also 
able  to  avoid  the  highest  rents  because  they,  too,  do  not 
demand  choice  locations.  Investigations  established  the 
fact  that  vehicle  and  implement  stores  pay,  on  an  aver- 
age, 2.12  per  cent  of  their  sales  for  rent,  and  groceries 
3.07  per  cent.  The  retailers  of  vehicles  or  implements 
usually  hold  close  to  the  average,  but  grocers  often  vary 
one  per  cent  from  the  standard  for  their  line.  A  grocery 
in  an  exclusive  residential  section  of  a*  large  city,  with 
sales  of  $74,400,  for  instance,  pays  3.7  per  cent ;  and  a 
small  country  store  in  California  spends  but  1.2  per  cent 
to  secure  sales  of  $45,620.  Small  cash  groceries  in  the 
large  cities  pay  heavy  rents  in  proportion  to  their  sales, 
however.  Figures  from  the  middle-west  for  sales  volumes 
under  $10,800  point  3.5  per  cent  as  an  average  for  this 
class. 

Clothing,  shoe,  dry  goods  and  hardware  stores  as  a 
rule  lease  more  expensive  shops.  They  hire  a  good  loca- 
tion in  addition  to  the  building.  Clothing  stores  in  the 


LOCATION  AND  RENT 61 

large  cities  pay  rentals  which  equal  five  per  cent  of  their 
sales,  but  figures  from  all  sections  of  the  country  set  3.04 
per  cent  as  an  average.  Several  hundred  shoe  stores 
reported  rents  which  fixed  a  standard  of  3.21  per  cent, 
although  one  very  exclusive  shop  spends  four  times  as 
much.  Dry  goods  stores  were  found  to  center  about 
3.24  per  cent,  and  only  two  rents  exceeding  four  per 
cent  appeared.  Hardware  uses  large  stores  and  retailers 
of  this  line,  investigators  showed,  on  the  average  pay 
3.41  per  cent  of  their  sales.  The  lowest  rent  percentage 
for  this  line,  1.2,  came  with  figures  from  British 
Columbia,  and  no  hardware  dealer  reported  payments 
exceeding  five  per  cent. 

Furniture  stores,  which  demand  a  large  amount  of 
display  space,  and  department  stores  leasing  the  most 
expensive  locations,  pay  still  higher  rents.  Investiga- 
tion failed  to  find  a  furniture  store  paying  one  per  cent 
more  or  less  than  5.04  per  cent,  the  national  average 
figured  for  this  line.  Department  stores  pay  rents  which, 
when  averaged,  equal  3.91  per  cent  of  their  sales.  Sev- 
eral concerns  doing  a  very  large  business  in  New  York 
and  Chicago  manage  to  rank  about  one  per  cent  lower, 
but  it  is  also  true  that  at  least  two  big  stores  are  paying 
slightly  over  four  per  cent. 

The  highest  retail  rents  are  carried  by  furniture, 
jewelry,  drug  and  variety  stores.  They  search  out  the 
choice  locations  and  pay  well  for  them.  The  buildings 
become  a  secondary  matter  and  the  sites  all  important. 
No  jeweler  reported  payments  for  rent  which  exceeded 
the  average  set  for  this  line,  4.98  per  cent,  by  more  than 
one  per  cent,  and  the  Indiana  store  which  showed  the 
lowest  percentage,  2.2,  explained  that  its  lease  was 
unusually  favorable.  The  drug  stores  averaged  4.02  per 
cent,  and  even  in  the  small  towns  rents  were  not  found 


62 SELLING  EXPENSE 

to  range  below  two  per  cent.  The  record  rent  is  paid  by 
a  druggist  in  a  large  city  who  spends  6.1  per  cent  of  his 
sales  volume  of  $350,000  to  the  landlord.  Investigators 
did  not  encounter  a  single  variety  store  which  varied 
one  per  cent  from  the  standard  they  set  for  this  line, 
4.41  per  cent.  One  variety  store  in  Chicago,  a  member 
of  the  Woolworth  syndicate,  pays  $5,416  a  month  for 
its  quarters. 

FIVE  ways  for  getting  more  out  of  the  rent  bill  are 
here  analyzed  in  detail,  with  instances  from  the  ex- 
periences of  successful  merchants. 

Since  rent  is  one  of  the  heaviest  items  in  the  cost  of 
doing  business,  in  his  struggle  to  keep  up  with  rising 
expenses  the  progressive  retailer  watches  for  opportuni- 
ties to  reduce  it  in  one  or  more  of  five  ways — rearrange- 
ment, building,  moving,  buying  or  advertising.  Because 
rents  purchase  two  distinct  needs,  a  roof  and  a  location, 
there  are  two  directions  in  which  to  guide  these  five 
methods  for  economizing  on  rentals.  Rearrangement 
involves  making  the  most  of  the  roof,  regardless  of  where 
it  is  located,  and  often  opens  the  way  to  profitable  sub- 
leases. 

A  clothing  firm  in  Seattle  has  a  long  lease  on  the 
ground  and  second  floors  of  a  building  occupying  one 
of  the  most  valuable  corners  in  the  city.  Recently  this 
concern  found  that  by  crowding  stocks  together  and  buy- 
ing new  fixtures  it  could  release  the  entire  second  floor. 
This  space  was  remodeled  into  small  shops  which  more 
than  paid  the  entire  rent  for  the  two  floors.  Not  only 
does  this  company  thereby  secure  a  store  free  of  charge, 
but  by  subleasing  to  retailers  whose  stocks  are  asso- 
ciated with  its  displays,  it  wins  new  trade. 

Frequently  a  rearrangement  of  entrances  results  in 


LOCATION  AND  RENT 


63 


better  returns  from  the  rent.  A  southern  druggist 
observed  that  although  a  great  many  people  used  the 
street  beside  the  blind  wall  of  his  store,  very  few  of  them 
apparently  noticed  his  entrance  around  the  corner.  They 
were  usually  in  a  hurry  to  reach  an  interurban  station 


TUBM   THIS    CHTCH 


Shirts 


Qollars 


••#} 


RENT 


3.04% 


Bad  Debts 


M7o 


9.49% 


Advertising 


2.16% 


Heat  and  Light 


.62% 


Dalivery 


.t&7o  | 


Supplies 


.43% 


Insurance  and  Taxes 


1.07% 


General  Expenses 


1.31% 


1  Depreciation  and  Shrinkage        1.16% 


FIGURE  VI:      This  sale  of  a  tie  for  fifty  cents  is  placed  beside  the  aver- 
age itemized  cost  of  doing  a  retail  clothing  business,  which  sets  the  actual 
cost  of  selling  the  tie  at  ten  cents 

a  block  below  and  in  no  mood  to  search  out  shop  en- 
trances in  order  to  make  purchases  left  until  the  last 
moment.  The  druggist  put  a  wide  doorway  through 
the  blind  wall,  flanked  it  with  display  cases,  and  adver- 
tised for  transient  trade.  The  new  business  which 
resulted  could  not  be  accurately  figured,  but  in  eleven 
months  his  sales  increased  twenty-eight  per  cent  and  his 
rent  percentage  dropped  from  4.01  to  3.6  per  cent.  The 
magazine  and  newspaper  counter,  shifted  to  the  new 


64 SELLING  EXPENSE 

side  entrance,  showed  an  increase  of  sixty-seven  per 
cent,  probably  almost  entirely  due  to  the  rearrange- 
ments. 

Remodeled  interiors  supply  a  possible  way  for  avoid- 
ing increased  rentals.  Mezzanine  balconies  are  now  a 
common  method  for  handling  growing  stocks.  C.  J. 
Bicker  of  Emporia  warded  off  the  cost  of  new  space  by 
putting  his  phonograph  department  on  the  balcony  in 
his  jewelry  store,  for  example.  A  wholesale  firm  did 
not  notice  until  new  lines  required  additional  space  that 
the  ground  floor  ceilings  were  unusually  high.  A  bal- 
cony was  built  over  the  rear  of  this  floor  and  the  account- 
ing department  moved  to  it.  The  new  stocks  were  then 
easily  handled. 

It  is  also  often  practicable  to  hold  space  in  grocery 
stores  to  the  lowest  limit  by  fitting  the  fixtures  closely 
to  the  stock  handled.  A  Chicago  grocer  who  faced  a 
demand  for  more  space  went  over  his  stock,  sorted  it  into 
sizes,  and  rebuilt  his  wall  shelves  into  corresponding  com- 
partments. He  found  that  the  new  fixtures  increased 
capacity  one-third. 

When  the  rent  mounts  high  more  than  one  retailer 
has  economized  on  window  space.  A  western  jeweler 
narrowed  his  windows  to  shelf  width  and  put  the  dis- 
plays on  boards  which  slide  into  grooves.  This  enables 
him  to  use  two  new  counters  and  arrange  displays  on 
extra  slides.  At  night  he  slips  out  the  valuable  display 
and  guards  against  heavy  losses  from  burglary  by 
replacing  it  with  inexpensive  stock. 

Manufacturers  are  constantly  getting  more  out  of 
that  portion  of  their  rentals  which  hires  the  buildings 
by  studying  to  secure  compactness.  One  maker  of 
notions  monthly  marks  off  in  colors  on  a  floor  diagram 
the  space  used  by  his  departments  and  in  this  way 


LOCATION  AND  RENT 65 

secures  a  graphic  representation  of  changes.  The  dia- 
grams suggest  ways  for  economizing  on  space  and  pre- 
vented the  building  of  one  extension  which  was  at  first 
thought  to  be  an  absolute  necessity. 

WHEN  to  move,  when  to  remodel — these  decisions 
often  make  or  break  the  merchant.   How  a  number 
of  successful  men  have  solved  them  is  here  described. 

The  four  ways  of  reducing  rent  in  addition  to  rear- 
ranging— moving,  buying,  building  or  advertising — deal 
primarily  with  location.  For  instance,  half  the  battle 
against  rents  may  frequently  be  won  by  keeping  on  the 
watch  for  a  chance  to  move  advantageously.  One  va- 
riety store  trebled  its  sales  by  changing  to  a  shop  which 
increased  the  rental  from  fifty  to  sixty-five  dollars. 
However,  moving  is  profitable  to  the  retailer  only  after 
he  has  made  a  careful  study  of  conditions. 

At  times  the  natural  advance  of  rentals  in  a  popular 
district,  or  the  shifting  of  retail  centers,  make  moving 
absolutely  necessary.  One  solution  is  to  take  extra 
space  and  sublease.  A  clothier  in  a  small  Indiana  city, 
when  he  found  larger  quarters  imperative,  took  an  entire 
building  and  remodeled  the  upper  floors  into  offices.  He 
•also  installed  a  central  heating  plant.  The  convenient 
offices  were  eagerly  taken  at  figures  which  reduced  his 
rent  percentage  from  3.1  per  cent  to  2.25  and  cut  heat- 
ing bills  in  half.  With  the  savings  he  buys  additional 
advertising  which  is  building  sales  at  a  faster  rate  than 
he  could  normally  have  expected. 

Stores  above  the  ground  floor  are  also  a  possibility 
under  like  circumstances.  In  several  large  cities  shops 
are  prospering  on  even  the  twelfth  floors  of  large  build- 
ings. Where  choice  ground  floor  rentals  in  these  cities 
run  to  twenty  dollars  a  square  foot,  second  floor  space 

5 


66 SELLING  EXPENSE 

in  the  same  buildings  may  be  had  for  about  three  dollars 
a  square  foot.  A  clothier  on  the  third  floor  of  a  Chi- 
cago building  has  built  a  losing  business  into  one 
handling  four  thousand  dollars'  worth  of  profitable  sales 
a  day  by  advertising  that  the  saving  between  his  five- 
thousand-dollar  rent  and  the  fifty-thousand  charge  for 
corresponding  ground  floor  space  will  be  given  to  cus- 
tomers who  take  a  three-second  elevator  ride. 

To  buy  or  build  may  also  solve  the  rent  problem.  A 
well-known  Boston  merchant  says  that  if  his  father  had 
bought  ten  years  ago  the  land  occupied  by  their  store 
the  net  annual  saving  would  now  be  one  hundred  and 
twenty-five  thousand  dollars.  Once  a  favorable  site  is 
found  which  has  not  been  suitably  improved,  owners 
or  capitalists  will  usually  put  up  a  satisfactory  building 
on  a  long  lease.  It  is  also  possible  for  companies  which 
do  not  need  choice  retail  locations  to  purchase  or  lease 
old  buildings  and  remodel  them  into  attractive  business 
homes. 

A  few  retailers  have  successfully  turned  to  advertis- 
ing in  their  efforts  to  secure  reduced  rents.  They  hire 
stores  on  side  streets  and  spend  more  than  usual  for 
advertising,  but  not  enough  to  make  their  total  pay- 
ments equal  the  highest  rents.  A  Boston  store  which 
uses  this  method  has  a  slogan  for  explaining  the  situa- 
tion to  prospects :  "  A  bit  farther,  but  it  pays  to  walk. ' ' 
There  is  undoubtedly  a  close  relation  between  high  rents 
and  the  advertising  value  of  a  favorable,  expensive  loca- 
tion. Variety  stores  take  advantage  of  this  fact  and 
secure  small  shops  near  the  big  stores  which  spend  large 
amounts  on  advertising.  Careful  investigation  has  failed 
to  prove,  however,  that  a  high  rent  as  a  rule  reduces  the 
advertising  appropriation. 

But  rentals,  even  if  they  do  not  uniformly  offset  adver- 


LOCATION  AND  RENT 67 

tising,  are  closely  bound  to  insurance  and  taxes.  By  its 
location  and  structure  the  building  absolutely  decides 
the  taxes  and  helps  as  well  to  fix  the  insurance  rate  on 
your  stock.  The  taxes,  if  shown  to  be  fairly  assessed 
by  the  public  officials,  are  difficult  to  reduce,  and  fre- 
quently they  are  placed  beyond  the  retailer's  reach 
through  direct  payment  by  the  landlord.  Insurance, 
however,  is  at  least  to  some  extent  controlled  by  the 
maker  or  distributor  who  rents  his  business  home. 

INSURANCE,  although  one  of  the  smaller  items  in  the 
1.  cost  of  doing  business,  frequently  offers  an  opportunity 
to  make  savings  if  these  precautions  are  carefully  studied. 

First  of  all,  there  are  certain  precautions  to  be  ob- 
served if  the  closest  economy  is  desired.  When  the 
insurance  carried  falls  below  a  certain  proportion  of  the 
replacement  value,  insurance  companies  are  able  to 
enforce  so-called  co-insurance  clauses  and  pay  only  a 
portion  of  the  loss  suffered.  Even  when  you  feel  that 
full  insurance  is  being  carried,  a  total  loss  may  show 
that  discarded  dies,  patterns  or  fixtures  which  you  had 
not  thought  worth  covering  would,  if  replaced,  cost 
enough  to  make  these  co-insurance  clauses  effective,  for 
the  insurance  companies  figure  replacement  values  on 
everything.  Therefore,  it  is  wise  to  note  in  the  policy 
that  discarded  equipment  is  excepted. 

Furthermore,  depreciation  should  be  carried  as  a  sep- 
arate account  or  merely  jotted  down  on  a  memorandum 
blank,  for  if  fixtures  or  stocks  are  actually  reduced  in 
value  on  the  books,  it  will  be  difficult  to  convince  the 
insurance  adjuster  of  the  actual  replacement  value. 
Records  of  cartage  and  setting  up  charges  are  also  of 
value  in  establishing  fair  replacement  figures,  and  if 
co-partnership  insurance  is  carried,  the  clauses  which 


SELLING   EXPENSE 


direct  payment  to  the  company  instead  of  the  heirs 
deserve  careful  inspection  by  a  lawyer.  As  a  rule,  insur- 
ance on  retail  stocks  and  fixtures  should  not  be  allowed 
to  fall  below  four-fifths  of  the  replacement  value. 

It  is  to  be  expected  that  valuable  furniture  and  jew- 
elry stocks,  and  drug  inventories  containing  highly 
inflammable  goods,  cost  more  than  usual  to  insure,  and 
make  the  insurance  percentages  paid  by  retailers  of  these 
lines  heavy.  Clothing,  department  store  and  dry  goods 
stocks  are  also  large,  and  frequently  valuable.  There- 
fore, insurance  charges  on  them  naturally  average 
higher  than  among  the  bulky  or  less  expensive  goods 
handled  by  grocery,  hardware,  vehicle,  variety,  and 
implement  stores.  These  conditions  are  substantiated 
by  the  following  percentages  of  retail  sales  spent  for 
insurance  and  taxes : 

Groceries 58% 

Mail  order  houses 98% 

Variety   goods 98% 

Hardware    99% 

Department    stores 1.01% 

Shoes , 1.03% 

Implements  and  vehicles 1.04% 

Clothing    ., 1.07% 

Dry  goods 1.08% 

Drugs    1.21% 

Jewelry   1.32% 

Furniture    1.57% 

The  most  favorable  opportunity  for  securing  perma- 
nent reductions  in  these  insurance  costs  occurs  when  the 
building  is  being  erected  or  remodeled.  The  local  insur- 
ance board  may  then  be  requested  to  offer  suggestions 
for  obtaining  low  rates.  A  retailer  who  recently  remod- 
eled a  store  in  Maine  found  that  the  insurance  man  gave 


LOCATION  AND  RENT 69 

advice  which  resulted  in  reducing  the  rate  from  five  to 
two  and  a  half  dollars. 

A  million  dollars'  worth  of  property  is  daily  lost 
through  fires.  The  resulting  hazard  in  part  sets  your 
insurance  premium,  but  local  conditions  within  your 
control  also  influence  the  rate.  Therefore,  reductions 
can  frequently  be  obtained  by  either  installing  fire-fight- 
ing equipment  or  using  safer  lighting  and  power  facili- 
ties. A  bookbinding  plant  found  that  the  use  of  elec- 
tricity for  heating  the  glue  pots,  at  a  higher  cost  than 
charcoal,  reduced  the  insurance  enough  to  secure  a  net 
saving.  The  owner  of  a  small  office  building  in  a  middle- 
western  city  cut  the  insurance  rate  two  cents  a  hundred 
by  putting  an  extra  fire  hose  on  each  floor.  If  you  are 
near  a  hotel  or  some  other  building  which  increases  the 
premium  you  pay,  when  moving  it  may  be  possible  to 
locate  less  hazardous  surroundings  and  combine  a  lower 
rent  with  reduced  insurance  rates. 

In  general,  the  way  to  reduce  the  cost  of  doing  busi- 
ness through  rent,  taxes  and  insurance  is  continually  to 
watch  for  a  more  favorable  location,  if  you  have  arranged 
your  present  space  to  the  best  advantage.  There  are 
men  who  allow  pride  to  stand  in  the  way  of  reductions 
in  these  items.  They  have  more  than  enough  space  but 
fear  that  their  reputations  will  suffer  if  they  move  to  a 
more  modest  building  actually  fitted  to  their  require- 
ments. They  hesitate  to  give  the  business  a  fair  chance. 
Others  know  they  are  enjoying  exceptionally  favorable 
leases  but  neglect  to  plan  for  the  future. 

A  clothier  in  an  Indiana  town  had  until  recently  a 
lease  at  a  very  low  rate  on  a  building  erected  for  his 
use  by  a  friend.  The  friend  died  in  1910  and  the  heirs 
increased  the  rent  fifty  per  cent  when  the  lease  expired. 
The  clothier,  because  he  had  not  prepared  for  this  con- 


70 SELLING   EXPENSE 

tingency,  found  a  year's  profits  entirely  taken  by  the 
increase  during  the  four  months  given  over  to  a  search 
for  a  new  location. 

Some  retailers  who  rent  adjoining  properties  from 
several  landlords  endanger  their  stores  by  failing  to 
have  the  leases  expire  simultaneously.  An  eastern  mer- 
chant who  uses  five  connected  buildings  was  recently 
forced  to  pay  fifty  thousand  dollars  a  year  for  one  of 
them,  instead  of  twenty-nine  thousand,  because  the  lease 
on  it  expired  before  those  on  the  other  four.  He  could 
not  sublease  all  of  the  stores  and  the  landlord  of  the  sin- 
gle building  took  advantage  of  the  situation. 

The  change  in  business  sections  brought  by  trends  in 
city  development  are  above  all  else  important  to  the 
maker  or  distributor.  Little  cities  are  growing  within 
the  big  cities.  Their  advances,  unless  anticipated,  may 
unexpectedly  force  the  manufacturer  to  move  miles  or 
drive  the  retailer's  rent  a  hundred  fold  higher.  These 
contingencies,  which  may  mean  life  or  death  to  your 
business,  can  be  turned  from  disasters  to  profitable  hap- 
penings only  by  keeping  watch  constantly  on  the  growth 
of  your  section. 


THE  COST  OF  GETTING 
TRADE 


ADVERTISING  not  long  ago  sold  in  one  day  seven 
alarm  clocks  out  of  a  stock  of  twelve  on  the  shelves 
of  James  McCloskey's  jewelry  store  in  Shelbyville, 
Indiana.  Year  in  and  year  out  for  decades  alarm  clocks 
have  been  stocked  and  advertised  in  Shelbyville  without 
equaling  this  day's  sales.  Moreover,  the  successful  copy 
was  written  by  a  man  who  has  probably  never  heard  of 
Shelbyville,  and  printed  in  a  magazine  published  hun- 
dreds of  miles  away.  Still  it  accomplished  a  task  at 
which  the  publications  nearest  to  Shelbyville,  and  the 
retailers  best  acquainted  with  every  man,  woman  or 
child  in  the  town,  have  ignominiously  failed. 

No  wonder  McCloskey  talks  of  the  event  in  astonish- 
ment. An  intangible  force  urged  people  to  come  to  his 
store ;  they  responded ;  he  took  in  cold  cash ;  his  profits 
benefited.  The  same  force  is  at  his  own  finger  tips,  but 
he  has  not  been  able  to  make  it  sell  alarm  clocks.  Adver- 
tisement after  advertisement  addressed  to  the  good  peo- 
ple of  Shelbyville,  telling  them  about  alarm  clocks 
through  their  own  papers  in  the  words  of  McCloskey 
himself,  does  not  move  many  timepieces.  Nevertheless 
a  factory  in  the  West  and  a  publishing  firm  in  the  East 
succeeded  in  marketing  clocks  over  McCloskey's  coun- 
ters. 


72 SELLING  EXPENSE 

It  is  quite  safe  to  say  that  McCloskey  would  not  believe 
this  if  he  had  not  questioned  every  one  of  the  seven  who 
purchased  alarm  clocks  that  day.  He  let  the  first  sale 
pass  without  particular  notice,  but  the  second  aroused 
his  curiosity.  The  third  astounded  him.  He  asked  this 
customer  what  prompted  her  to  buy.  When  she  men- 
tioned the  advertisement,  he  called  the  first  two  pur- 
chasers by  telephone.  The  same  advertisement  had 
interested  them.  The  last  four  to  seek  alarm  clocks 
went  through  a  rigid  catechism  by  McCloskey  before 
they  were  even  able  to  spend  their  money.  They  spoke 
of  the  advertisement.  McCloskey  today  stands  con- 
vinced not  only  that  advertising  is  a  mighty  selling  force, 
but  that  he  can  take  advantage  of  it  himself. 

Definite  results  like  these  in  Shelbyville  enable  those 
who  watch  advertising  carefully  to  set  up  standards  that 
tentatively  measure  its  efficiency.  The  spread  of  adver- 
tising until  it  became  a  six-hundred-million-dollar-a-year 
national  selling  force  not  so  long  ago — in  the  nineteenth 
century — put  it  on  trial  as  a  new,  broad,  distributive 
method.  For  years  many  checked  its  work. 

Hence  we  today  probably  have  more  standards  and 
recorded  results  for  advertising  than  for^the  majority 
of  the  items  in  the  rising  costs  of  doing  business.  To 
take  an  example,  many  merchants  probably  know  more 
closely  what  to  spend  for  advertising  than  for  rent.  No 
doubt  if  we  were  in  a  position  to  bring  together  the 
scattered  data  that  lies  unassembled  on  advertising,  we 
could  judge  from  wider  recorded  past  experience  in  buy- 
ing advertising  than  in  leasing  a  new  location. 

The  larger  department  stores,  for  instance,  spend 
from  two  to  four  per  cent  of  their  sales  for  advertising. 
A  new  store,  or  one  enlarging  its  activities  rapidly,  may 
use  five  per  cent,  allotting  two  per  cent  of  this  to  news- 


ADVERTISING  COSTS 


73 


COST  of  ADVERTISING  a  SALE  of 
WOMEN'S  and  MISSES'  COATS 

THE    ADVERTISING 

Advertisements  placed  in  four  morning  and  even- 
ing newspapers  $1,321.20 

Post  card  announcements  mailed  to  a  list — not 
used  for  previous  coat  sales — of  4,900  cus- 
tomers    198.00 

$1,519.20 

THE   RESULTS 

Women 's    coats    sold    $5,536.00 

Girls '  and  misses '   coats  sold 3,355.00 

$8,891.00 

Sales  by  hours  during  one  day  of  this  sale  in  the  misses ' 
coats  departments:  9:30,  $207.50;  10:30,  $317.75;  11:30, 
$503.75;  12:30,  $657.25;  1:30,  $854.00;  2:30,  $1,153.75; 
3:30,  $1,312.75;  4:30,  $1,511.75;  5:30,  $1,705.60.  It 
will  be  noticed  that  there  was  a  small  early  response 
which  soon  fell  off  and  at  12:30  only  one- third  of  the 
day's  total  was  registered.  The  largest  gain  came  be- 
tween 1:30  and  2:30. 

THE   LESSONS 

Since  the  $1,519  spent  for  advertising  are  19%  of  the 
sales  secured,  and  the  planned  sales  were  $18,414  (the 
total  value  of  the  stocks  placed  on  sale)  these  results 
are  not  promising.  However,  the  weather  was  bad  dur- 
ing the  beginning  of  the  sale  and  the  planned  sales  were 
evidently  far  too  high. 

Next  time  the  post  card  announcement  should  be  dis- 
continued and  more  window  space  devoted  to  the  sale. 

This  was  a  mid-week  sale.  Next  time  it  should  be  held 
on  Monday,  Tuesday  and  Wednesday  or  on  Thursday, 
Friday  and  Saturday.  If  it  is  held  on  Thursday,  Friday 
and  Saturday  an  announcement  should  be  made  the  pre- 
vious Sunday,  so  as  to  get  the  advantage  of  the  greater 
radius  of  circulation  of  the  Sunday  papers.  Much  of  the 
trade  comes  from  environs  which  are  not  reached  by  the 
week-day  papers.  Mid-week  advertising  is  not  best  for 
girls'  departments.  Many  reasons  back  this  up—the  most 
important  is  the  objection  to  taking  the  child  out  of 
school. 

Only  six  sales  were  lost  and  the  prices  appeared  to  be 
at  the  proper  levels. 


74 SELLING  EXPENSE 

papers.  Those  in  New  York  City  average  about  two  or 
three  per  cent  and  the  Boston  stores  range  approx- 
imately one  per  cent  higher.  A  prosperous  Texas 
department  store,  on  the  other  hand,  allows  only  1.32 
per  cent  of  its  sales  for  advertising.  R.  H.  White  and 
Company  of  Boston  buy  regularly  every  Sunday,  in  one 
paper  alone,  space  worth  $1,500.  The  actual  depart- 
ment store  campaigns  described  on  pages  73,  81,  84  and 
85  indicate  typical  advertising  costs  on  specific  offers. 

Gas  and  electric  light  companies  of  considerable  size 
customarily  appropriate  from  two  and  a  half  to  four  per 
cent  of  their  gross  receipts  for  advertising  purposes. 
The  wholesale  druggists,  however,  do  not  usually  spend 
over  one  per  cent,  and  confine  their  space  to  trade  pub- 
lications. Through  their  national  association  the  retail- 
ers of  hardware  advise  in  their  line  an  advertising 
expenditure  equal  to  two  and  a  half  per  cent  of  the 
sales.  The  variety  stores  do  not  use  more  than  two  per 
cent  for  advertising  and  include  in  this  appropriation 
not  only  printers'  ink,  but  as  well  the  loss  on  "leaders" 
sold  below  cost  to  attract  trade  and  a  portion  of  the  high 
rentals  shouldered  in  order  to  reach  large  crowds. 

Figures  from  the  manufacturers  are  also  available. 
The  American  Keyless  Lock  Company  made  a  $472.57 
advertisement  draw  inquiries  at  a  cost  of  from  2.5  to 
9.6  cents  each,  with  an  average  at  6.3  cents;  sell  4,287 
locks;  and  bring  in  cash  amounting  to  $3,620.46.  Pour 
makers  of  hoisting  equipment  put,  on  the  average,  2.25 
per  cent  of  their  gross  sales  into  trade  paper  advertis- 
ing; four  manufacturers  of  excavators  and  shovels,  2.13 
per  cent;  and  one  firm  handling  contractors'  equipment, 
seven  per  cent.  A  stationary  engine  offer  secures  sales 
at  a  cost  of  eight  per  cent — one  $140  advertisement 
pulled  259  inquiries  which  resulted  in  fifteen  sales  total- 


ADVERTISING  COSTS 75 

ing  $1,132.47.  The  owners  of  a  nationally  advertised 
line  of  corsets  invest  from  three  to  four  and  a  half  per 
cent  of  the  sales  in  advertising. 

A  DVERTISING  bills  can  rarely  appear  in  the  light 
•iV  of  so  much  money  lost  when  it  is  possible  to  check 
them  against  standards  such  as  these  and  predict  returns. 

Retail  advertising  comprehends  all  methods  of  getting 
customers  into  the  store — newspapers,  circulars  and  show 
windows.  Even  the  most  difficult  of  these  to  trace,  the 
cost  of  advertising  through  show  windows,  may  be 
checked  against  known  values.  Hundreds  of  druggists 
outside  the  Chicago  down-town  business  district  have 
agreed  that  their  windows  are  worth  from  three  to  fifteen 
dollars  a  week,  and  some  of  those  in  the  heart  of  the  city 
consider  one  hundred  dollars  conservative.  A  New 
England  store  charges  the  departments  using  its  win- 
dows over  three  hundred  dollars  a  day,  and  one  Chicago 
firm  annually  spends  $80,000  decorating  windows.  A 
real  estate  expert  who  has  intensively  studied  the  value 
of  show  windows  strikes  an  average  for  the  country  at 
ten  dollars  a  week.  Since  the  show  windows  occupy  the 
choice  space  in  a  store — the  front  part  of  the  main  floor 
is  the  portion  most  used  by  customers — their  value  is 
anything  but  trivial. 

Statistics  of  a  broader  character  supplement  these 
detailed  costs.  Thirty  thousand  nine  hundred  and 
twenty-seven  reports  from  Chicago  consumers  show  that 
fifty-five  per  cent  were  influenced  by  the  dealer  to  buy 
nationally  advertised  brands,  thirty-six  per  cent  by  ad- 
vertisements, and  six  per  cent  by  friends.  Sixty-one 
per  cent  of  them  bought  cocoa  and  chocolate  because  of 
the  advertisements,  sixty  per  cent  cereals,  forty-eight 
per  cent  non-intoxicating  beverages,  forty-six  per  cent 


76 SELLING  EXPENSE 

flavoring  extracts,  and  forty-five  per  cent  meat  products. 

Several  investigations  tend  to  show  that  possibly  news- 
paper advertising  campaigns  may  be  repeated  with 
safety  after  six  or  twelve  months  have  elapsed.  Full 
pages  in  newspapers  frequently  pull  six  or  eight  times 
as  much  as  half  pages.  An  advertisement  is  rarely 
effective  in  the  Sunday  editions  of  large  dailies  for 
more  than  six  weeks.  Circularization,  on  the  average, 
is  more  expensive  than  newspaper  advertising. 

The  man  who  wrote  the  copy  which  sold  McCloskey's 
clocks  in  Shelbyville  doubtless  knew  these  indicated,  if 
not  fully  established,  standards,  and  probably  many 
more.  With  them  he  partly  guided  his  ability  to  write 
paying  copy.  Now  the  majority  of  the  standards 
McCloskey  and  the  seven  hundred  and  fifty  thousand 
odd  other  retailers  in  the  United  States  can  pick  right 
out  of  this  chapter  and  use.  This  of  course  assumes 
that  they  want  to  advertise  in  one  way  or  another  in 
order  to  obtain  the  larger  sales  volumes  demanded  by 
the  narrow  margins  of  today.  There  are  some  retailers 
who  do  not  advertise,  but  a  large  wholesale  firm  has  col- 
lected statistics  which  signify  that  about  eighty-four  per 
cent  of  the  failures  in  this  country  centers  among  those 
who  spend  nothing  on  advertising. 

The  standards  already  given,  and  those  in  the  table  on 
page  78,  although  they  furnish  a  general  idea  of  normal 
advertising  expenditures,  cannot  be  relied  upon  to  show 
exactly  how  much  to  spend.  Local  competitive  condi- 
tions determine  the  actual  amounts  in  each  case.  Some- 
times an  expensive  location  lowers  the  advertising  expen- 
diture; at  others  it  works  the  opposite  way.  The  man 
who  has  a  high-priced  location  can  usually  match  the 
sales  volumes  of  rivals  in  cheaper  stores  at  a  lower  direct 
advertising  cost.  However,  in  nine  cases  out  of  ten  he 


ADVERTISING  COSTS 


77 


wants  to  better  their  records.  Then  his  advertising 
bills  often  exceed  theirs,  both  on  account  of  this  desire 
and  because  he  understands  that  it  is  frequently  more 
profitable  to  advertise  a  good  location  extensively  than 
a  poor  one. 

Factors  of  this  nature  cause  wide  variations.    Indeed, 


c 

% 

26 
24 
22- 
20- 

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omparisons  of  Total  Expenses  with  Advertising  Costs 

'  Average  Costs  of  Doing  Busii 
i^ffMtil  Average  Advertising  Costs 

less 

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FIGURE  VII:    These  comparisons  indicate  that  lines  which  turn  quickly 
under  low  costs  spend  the  least  for  advertising.      Department  stores,  how- 
ever, strive  for  large  volumes  in  order  to  cover  heavy  expenses 

the  statistics  in  this  article  are  almost  valueless  unless 
it  is  remembered  that  different  cases  require  different 
treatment  and  that  the  important  point  is  less  how  much 
to  spend  than  how  to  spend  in  order  to  make  every 
medium  pull  its  utmost  in  line  with  other  sales  forces. 


78 SELLING  EXPENSE 

Here  are  a  few  cases  in  point:  A  New  England  mer- 
chant selling  annually  $40,000  worth  of  goods  spends 
$3,000  for  advertising  and  a  man  in  the  Middle  West 
secures  about  the  same  volume  for  only  $1,200 ;  one  firm 
in  the  East  has  held  its  advertising  bills  to  an  average  of 
two  per  cent  of  the  sales  for  fifteen  years,  while  a  chain 
of  ten  small  western  stores,  each  handling  a  volume 
between  twelve  and  fifty  thousand  dollars,  fixes  two  and 
a  half  per  cent  as  normal ;  and  in  the  Northwest  a  chain 
of  five  stores  figures  three  per  cent  a  fair  appropriation. 
Expenditures  as  .divergent  as  these,  from  all  sections 
of  the  country,  when  averaged,  nevertheless  give  stand- 
ards which  will  immediately  detect  abnormal  advertising 
expenses.  Investigators  .have  taken  figures  drawn  from 
over  one  thousand  stores  and  compared  them  to  secure 
the  following  averages,  which  are  percentages  of  the 
net  sales  and  include  all  types  of  advertising  normally 
paid  for  by  retailers — letters,  catalogs,  decorating  win- 
dows, newspaper  space,  time  used,  and  so  forth: 

Groceries    83% 

Hardware    '  1.12% 

Vehicles  and  implements 1.22% 

Variety   goods 1.52% 

Shoes  ,. .  1.65% 

Dry  goods 1.67% 

Drugs 1.76% 

Furniture    2.72% 

Jewelry 2.85% 

Clothing    3.16% 

Department    stores 4.01% 

Mail  order  houses 7.21% 

These  standards  represent  average  expenditures.  The 
returns  they  bring  are  horses  of  another  color.  C.  C. 
Brown  writes  copy  for  his  store  in  Cawker  City,  Kansas, 
which  pulls  a  twenty-five-per-cent  increase  in  sales,  but 


ADVERTISING  COSTS 79 

the  retailers  in  Canajoharie,  New  York,  may  not  do  as 
well.  The  "how"  of  the  methods  of  men  like  Brown 
are  worth  study.  A  careful  analysis  of  the  advertising 
of  sixty-two  merchants  who  are  known  to  be  making  good 
in  twelve  states  with  sales  volumes  ranging  from  twenty 
million  to  eleven  thousand  dollars  a  year  shows  that  they 
use  five  methods:  (1)  placing  right  merchandise  behind 
the  advertising;  (2)  telling  nothing  but  the  truth;  (3) 
building  up  individuality  and  personality  through  all 
the  advertising;  (4)  getting  store  or  other  news  into 
the  copy;  and,  (5)  keeping  everlastingly  at  it. 

Let  us  discuss  these  five  methods  by  which  the  sixty- 
two  merchants  build  trade  through  advertising.  First 
comes  the  necessity  of  having  the  rignt  goods  behind  the 
advertising.  The  root  of  all  advertising  is  in  the  mer- 
chandise it  describes.  Stocks,  service  and  store  environ- 
ment build  sales  just  as  surely  as  printed  words.  Leo 
Kahn  of  Connersville,  Indiana,  does  not  spend  a  cent  on 
newspaper  space,  preferring  to  advertise  with  service, 
unusually  attractive  equipment,  exclusive  stocks  and 
down-to-bed-rock  prices.  A  misrepresented  sale  brings 
ruin  if  it  is  often  duplicated.  The  consumers  are  becom- 
ing better  posted  on  values.  Ninety-nine  per  cent  of  our 
successful  merchants  put  the  right  goods  back  of  their 
prices  as  a  matter  of  second  nature.  The  first  method 
of  the  five  favored  by  the  sixty-two  merchants  is,  there- 
fore, all  important. 

Another  incident  to  illustrate  the  importance  of  hav- 
ing sound  goods  back  of  the  advertising.  One  of  the 
dozen  or  so  eastern  retailers  who  handle  sales  running 
into  the  millions  grades  the  elements  in  his  advertising 
as  follows:  (1)  style;  (2)  fit;  (3)  completeness  of 
stocks;  (4)  service;  (5)  profit.  He  pays  his  advertising 
manager  fifteen  thousand  dollars  a  year  to  plan  his 


80 SELLING  EXPENSE 

copy,  but  sees  to  it  himself  that  this  copy  ranks  merchan- 
dise first  and  profit  last.  No  doubt  his  doing  so  helps 
to  explain  why  he  is  a  millionaire. 

The  second  method  of  the  five  we  are  analyzing  pre- 
scribes truthful  copy.  Apparently  every  retailer  is 
agreed  on  this  point.  Still,  this  label  continues  to  be 
used :  ' '  Fresh  gathered  eggs — 35  cents  a  dozen. '  '  And 
a  Chicago  store  advertises:  "Get  a  $25  suit  for  $17, 
with  two  pairs  of  trousers.  You  can  do  it  here  because 
you  don't  have  to  pay  for  an  enormous  'Loop '  rent.  We 
don't  pay  any  rent  at  all.  We  own  our  own  building. 
We  save  $100,000  on  that  item  alone ;  we  save  thousands 
more  on  other  expenses — and  you  save  on  those,  too. ' ' 

If  the  poor  knowledge  of  accounting  indicated  by 
failing  to  charge  himself  rent  is  an  indication  of  this 
man 's  methods,  his  store  will  soon  be  in  difficulties. 

]\/f ERCHANTS  have  built  fortunes  by  advertising 
1  *  1  and  merchants  have  lost  fortunes  by  not  knowing  how 
to  advertise.  These  policies  are  followed  by  the  former. 

It  is  true  that  it  is  difficult  to  hold  to  the  "one  price 
to  all"  principle  in  some  towns  of  small  population, 
especially  if  many  of  the  customers  are  farmers  who 
themselves  contend  with  varying  prices.  *  However,  mer- 
chants who  insist  on  holding  to  their  prices  under  these 
circumstances  are  winning  out  when  they  freely  adver- 
tise the  justness  of  their  attitude. 

Now  if  it  amounts  to  anything  at  all,  advertising  is  a 
window  through  which  you  invite  consumers  to  look  at 
your  offerings.  If  this  window  is  blemished  with  fake 
statements  and  half-truths  and  crooked  ideals,  some  con- 
sumer notices  it  sooner  or  later.  He  will  tell  others; 
they  still  others — such  news  radiates  like  ripples  from 


ADVERTISING  COSTS 81 

EESULTS  of  ADVERTISING  a  SALE 
of  MEN'S  SHIRTS 

THE   ADVERTISING 

4617  lines  in  six  morning  and  evening  papers.  . .       $695.94 

Circulars  in  the  monthly  statements  sent  to 

charge  customers  on  the  first  of  the  month.  .  84.20 

Post  cards  to  the  men's  shirt  department's  spe- 
cial list  of  cash  customers 41.82 

Circulars  describing  the  other  men's  depart- 
ments and  distributed  at  the  doors 106.14 

Circulars  telling  how  the  shirts  were  secured  in 
large  lots  enabling  low  prices  to  be  set  for 
this  sale  24lll6 


$1,169.26 

THE   RESULTS 

The  first  day  (a  rainy  Friday)  2,849  shirts  were  sold  for 
85  cents  each,  987  at  $1.65,  and  302  at  $2.85.  Saturday 
962  went  at  85  cents,  763  at  $1.65,  and  228  at  $2.85. 
Small  advertisements  were  placed  in  the  Sunday  papers 
and  on  Monday  shirts  worth  $1,003  were  sold. 

THE  LESSONS 

The  sale  started  slowly  owing  to  very  rainy  weather. 
Sales  increased  slowly  until  noon.  At  noon  there  was  brisk 
selling  which  extended  until  shortly  after  two  o'clock.  It 
appears  fair  to  assume  that  during  this  period  many  peo- 
ple used  their  lunch  hours  to  take  advantage  of  the  sale. 
In  the  afternoon  a  great  many  women  and  middle-aged 
men  shopped  until  shortly  after  four  o'clock.  From  about 
4:30  until  closing  time  (5:30)  every  counter  was  again 
thronged  with  customers,  presumably  clerks  and  others. 

Because  of  the  confusion  that  existed  in  some  sections 
of  the  department,  it  would  seem  wise  for  the  next  sale  to 
place  shirts  of  the  same  price  together — that  is,  to  arrange 
an  85-cent  aisle,  a  $1.65  aisle,  and  so  on.  The  argument 
against  this  arrangement  is  that  sometimes  people  would 
buy  $1.65  shirts  if  shirts  at  that  price  were  in  the  85-cent 
aisle,  even  though  they  had  come  to  purchase  the  lower 
priced  merchandise.  This,  however,  would  not  appear  to 
offset  the  manifest  advantage  of  having  shirts  of  one  grade 
arranged  by  sizes  in  one  place. 

At  the  next  sale  it  would  also  be  wise  to  consider 
whether  or  not  it  would  be  advisable  to  have  the  sale  at 
only  one  price — 85  cents. 


82 SELLING  EXPENSE 

the  splash  of  a  stone  in  still  waters.  Then  comes  ruin 
and  disgrace,  for  severe  laws  against  untruthful  adver- 
tising are  rapidly  being  enacted. 

A  man  who  sits  high  in  the  trade  councils  of  the  United 
States  and  of  the  world,  a  man  who  has  built  a  great 
business  from  a  room  you  could  span  with  outstretched 
arms,  has  the  following  opinions  about  putting  nothing 
but  truth  into  advertising — he  is  not  talking  for  publica- 
tion, but  for  the  benefit,  of  a  group  of  his  own  executives 
gathered  in  conference  after  closing  time : 

"We  say,  for  instance,  that  in  advertising  the  basic 
principle  is  to  tell  the  truth  and  only  the  truth.  That 
sounds  a  good  deal  like  copy  book  ethics  and  not  like 
business.  You  would  expect  to  be  told  that  from  the 
pulpit.  This  basic  principle  of  advertising  is  not  com- 
monly believed  in  or  else  a  great  deal  of  advertising, 
which  is  not  based  on  that  factor,  would  be  changed. 

"Why  is  it  good  business  in  advertising  to  tell  only 
the  truth?  Why  should  we  always  come  back  to  that 
if  we  are  in  doubt  as  to  what  to  do?  Because  if  by 
eloquence  or  technical  skill  in  advertising  we  are  able  to 
make  customers  come  into  our  store  and  buy  goods 
instead  of  buying  them  because  they  are  better,  cheaper 
and  more  desirable  than  those  of  our  competitors,  then 
we  are  at  the  mercy  of  words,  and  the  man  who  can  lie 
most  can  beat  us  out. 

"None  of  us  will  aspire  to  be  the  biggest  liar  in  the 
city,  and  on  that  basis  somebody  who  is  willing  to  be  a 
bigger  liar  than  we  are,  can  get  the  trade.  All  the  cor- 
rection of  methods,  all  the  building  up  of  scientific  sys- 
tems, comes  to  naught  unless  we  have  that  fundamental 
from  which  nothing  can  stir  us  and  to  which,  when  we 
are  involved  in  the  intricacies  of  advertising,  we  can 
always  go  back — to  tell  nothing  but  the  truth.  I  want 


ADVERTISING  COSTS 


you  clearly  to  emphasize  in  your  own  minds,  that  while 
this  is  good  ethics,  it  is  better  business." 

So  much  for  right  merchandise  and  truthful  copy — 
the  third  advertising  method  standardized  by  the  sixty- 
two  merchants  is  individuality  and  store  personality. 
Psychologists  would  tell  you  that  we  all  swarm  around 
a  great  average — a  norm,  they  call  it — millions  of  us. 
It  only  takes  an  infinitesimal  advance  to  raise  a  man 
above  this  norm.  As  soon  as  the  top  of  his  head  goes 
over  the  norm,  he  is  marked  by  thousands  in  his  imme- 
diate vicinity.  Let  him  push  one  shoulder  up,  and  a 
state  notices  him.  Just  a  shade  more  and  he  is  world 
known — a  Wanamaker  or  a  Field  or  a  Ford.  Still  his 
complete  advance  is  so  small  that  the  psychologists  watch- 
ing the  norm  scarcely  notice.  The  stores  which  reflect 
the  men  who  own  them  naturally  mass  on  a  great  norm, 
too.  A  bit  of  individuality  puts  a  firm  far  enough 
above  the  norm  to  secure  wide  and  profitable  attention 
for  it.  Hence,  it  is  worth  money  and  effort  to  secure 
store  personality. 

There  are  many  and  varied  ways  of  creating  individ- 
uality for  the  store.  Herbert  A.  Ballou  of  Worcester, 
Massachusetts,  painted  his  store  blue.  C.  J.  Ricker  uses 
a  white  tile  front  for  a  like  purpose.  Mr.  Ricker  has, 
in  addition,  a  little  slogan  which  he  advertises  exten- 
sively :  "Watch,  clock  and  jewelry  work  done  by  Ricker 
and  Son  is  always  well  done." 

Then  of  course  there  are  a  thousand  and  one  little 
plans  that  have  a  touch  of  individuality.  Some  mer- 
chants send  picture  post  cards  to  their  customers  from 
trade  conventions — that's  more  than  the  president  of  a 
mail  order  house  boasting  several  million  customers  can 
do,  at  any  rate!  Others  use  birth  cards  to  announce 
seasonal  changes  in  their  stocks.  An  insurance  company 


84 


SELLING  EXPENSE 


sends  policyholders  " perpetual  pencils"  on  their  birth- 
days.    A  laundry  sells  advertising  space  on  the  "  shape 


A  SAMPLE  RECORD  from  a 
SALE  of  DRESSES 

THE  ADVERTISING 

Advertisements  placed  in  four  morning  and 

evening  newspapers  $1,183.60 

Post  card  announcements  to  a  special  list  of  the 

department 's  cash  customers 172.40 


$  1,356.00 

THE  RESULTS 

Women 's    dresses    sold $9,990.00 

Misses '   dresses  sold 4,011.00 


$14,001.00 


THE  LESSONS 


Since  the  planned  sales  totaled  $12,000,  a  good  record 
was  made,  the  cost  of  the  advertising  being  9%  of  the 
sales. 

Mid-week  sales  of  this  type  are  valuable  because  they 
tend  to  make  the  daily  sales  volumes  uniform  during  the 
week. 

Some  of  the  lots  were  in  insufficient  quantities  and  this 
fault  should  be  remedied  next  time.  Only  about  100  of  a 
particularly  attractive  corduroy  dress  featured  in  the  ad- 
vertising were  on  hand.  They  were  all  gone  a  half  hour 
after  the  store  opened  for  the  sale. 

Sales  of  this  kind  are  unusually  worth*  while  because 
often  manufacturers  can  be  found  who  are  practically  idle 
at  the  time  and  therefore  willing  to  sell  almost  at  cost. 


holders"  it  puts  in  shirts  and  paints  the  sides  of  its 
wagons  like  checker  boards  so  that  the  housewives,  recog- 
nizing them  quickly,  will  have  their  bundles  ready. 

A  wholesale  paper  house  prints  a  catchy  business 
axiom  on  a  cover  of  its  house  organ  heavy  enough  to  be 
torn  off  and  stuck  over  a  desk.  Many  retailers  wisely 
connect  their  window  displays  with  local  events — when 


ADVERTISING  COSTS 85 

the  normal  school  has  a  May  pole  party,  their  windows 
show  miniature  poles;  after  a  local  ball  team  is  organ- 
ized, the  windows  attract  many  to  clay  models  of  the 
diamond,  and  so  on  through  hundreds  of  events.  Cata- 
logs frequently  help  to  draw  trade.  Wrapping  paper, 
unused  space  on  sales  slips  or  bags,  and  stationery  sup- 
ply other  ways  for  securing  individuality. 

Elaborate  sales  ideas  of  the  right  kind  often  build 


A  GENERAL  SALE  THAT  BROUGHT 
$90,000  in  a  DAY 

THE  ADVERTISING 

Space  in  newspapers  for  women's  departments.     $1,789.10 
Space  in  newspapers  for  men's  departments. . .          383.60 

$2,172.70 

THE  RESULTS 

Sales  in  all  departments $92,671.40 

THE  LESSONS 

This  is  a  one-day  sale  at  which  all  stocks  must  show 
prices  from  one-half  to  one-third  lower  than  usual. 

This  sale  shows  the  value  of  persistency  and  good  stock 
— the  sale  is  an  annual  event  during  which  great  care  is 
taken  to  offer  exceptional  values.  Hence  customers  come 
to  have  confidence  in  the  sale,  and  therefore  little  more 
than  a  detailed  announcement  is  needed — in  this  instance 
at  a  cost  of  but  0.02  per  cent  of  the  sales. 

A  careful  study  of  previous  records  and  growths  estab- 
lished an  estimated  volume  of  $90,000  for  this  sale — a 
remarkably  close  figure,  for  the  actual  volume  totaled 
exactly  $92,671.40. 

The  advertising  is  most  effective  when  run  in  large 
space,  one-fourth  of  which  vividly  explains  the  sale  and 
three- fourths  catalogs  items  from  seventy-eight  depart- 
ments set  solid  in  type  as  small  as  six  point.  Smaller  ad- 
vertisements, in  scattered  mediums,  do  little  more  than 
announce  the  sale. 


personality.     C.  J.  Rlcker  secretly  gave  five  men  gold 
watches  and  then  advertised  that  they  were,  instructed 


86 SELLING  EXPENSE 

to  hand  them  to  the  first  people  asking  them,  "Do  you 
trade  at  Ricker's?"  Emporia,  Kansas,  bustled  about 
for  days  shouting,  "Do  you  trade  at  Ricker's?"  C.  C. 
Brown  awards  the  woman  in  his  city  who  receives 
the  most  votes  from  coupons,  obtained  with  purchases  at 
his  store,  a  five-passenger  automobile.  He  first  adver- 
tised this  contest  on  a  March  fourteenth  and  by  April 
fourth  fifty-two  candidates  were  after  the  car.  A.  J. 
Aronson,  of  Canisteo,  New  York,  gave  the  school  chil- 
dren bags  of  marbles,  and  coupons  good  for  fifty  cents 
in  shoe  trade  at  a  specified  time  during  the  first  day  of 
the  marble  season.  He  attracted  a  lot  of  new  customers 
— it  pays  to  remember  the  young  folks. 

It  would  not  be  difficult  to  assemble  a  hundred  addi- 
tional advertising  ideas  that  bring  a  store  individuality. 
They  are  used  by  merchants  who  make  their  copy  pay 
by  concentrating  each  argument  on  a  single  point  that 
unearths  an  impulse,  by  following  the  seasonal  changes 
closely,  and  by  remembering  that  a  hundred  million  dol- 
lars was  recently  disposed  of  by  a  hundred-word  will. 
Above  all  they  write  their  copy  as  they  would  talk  to 
customers  over  the  counter — one  of  them  even  makes 
rough  drawings  of  barrels  or  crates  containing  repre- 
sentations of  his  special  offerings  and  has  them  zinced 
for  publication. 

THESE  five  simple  methods  for  making  advertising 
more  profitable  are  worth  careful  study — particu- 
larly the  plan  used  by  John  Wanamaker. 

Such  methods  broadly  apply  to  all  types  of  advertis- 
ing— newspaper  layouts,  telephone  calls,  letters,  show 
windows,  catalogs,  booklets,  circulars,  cards,  service, 
dodgers,  premiums,  blotters,  signs  and  circulars.  It  has 
been  shown  that  windows  are  worth  certain  amounts,  in 


ADVERTISING  COSTS 87 

dollars  and  cents,  a  week.  Therefore  they  warrant  close 
attention — sparkling  glass;  clean  sidewalls  and  floors; 
seasonable  displays,  changed  at  least  weekly;  color 
schemes;  no  over-crowding;  concentration  on  one  offer 
at  a  time;  and  a  connection  with  national  advertising 
when  possible.  Letters,  too,  pull  better  if  given  a  touch 
of  individuality. 

We  have  yet  to  consider  two  of  the  five  tested  meth- 
ods :  the  use  of  news  items  and  the  value  of  persistency. 
After  all,  we  only  advertise  as  a  matter  of  information, 
in  order  to  sell  by  description.  The  newspaper  report- 
ers write  their  stories  to  carry  information,  too.  But 
do  you  for  one  second  suppose  that  a  real  live  news- 
paper reporter  would  write,  if  instructed  to  compose  an 
advertisement  for  salt  sifters:  " Extra  values  in  salt 
sifters  ? ' '  More  probably  he  would  hand  in  this :  ' '  Salt 
sifters  that  shake  from  the  left  hand  while  the  right  is 
busy." 

Notice  just  two  sentences  from  a  John  Wanamaker 
advertisement:  "The  sturdy  rompers  of  cotton  crepe 
which  so  many  small  boys  and  girls  wore  last  summer 
came  from  the  hands  of  an  energetic  little  woman  who 
lives  in  a  bleak  seacoast  village,  and  many  of  our  finer 
things  are  made  by  individuals.  We  buy  wherever  we 
can  find  goods  up  to  our  standard. '  '  Hundreds  of  facts 
as  interesting  range  themselves  along  the  distributive 
and  productive  channels  which  bring  staples  to  every 
store  in  the  country.  The  news  to  be  found  in  all  stores 
of  any  size  is  welcomed  by  consumers. 

We  write  advertisements  to  get,  first,  attention;  sec- 
ond, a  reading ;  third,  a  decision.  Live  news  assures  us 
the  first  two  of  these  three  objects  and  a  fighting  chance 
for  the  third.  Surely  the  sixty-two  merchants  are  right 


88 SELLING  EXPENSE 

when  they  rank  news  interest  with  the  five  factors  that 
make  their  advertisements  pay. 

Persistency — keeping  everlastingly  at  it — comes  next. 
At  this  point  it  is  timely  to  call  to  mind  the  good  woman 
who  declared,  "I  don't  believe  in  nagging  my  husband, 
but  I  feel  it  is  my  duty  to  keep  some  things  before  him. ' ' 
There  are  facts  which  must  be  kept  before  consumers — 
otherwise,  no  excuse  exists  for  their  remembering  your 
business.  Advertising  in  one  form  or  another,  from 
exceptional  service  to  printed  words,  is  the  only  way  to 
spread  these  facts.  Further,  advertising  has  a  cumula- 
tive effect  which  can  be  crystallized  by  persistency  and 
nothing  else. 

Examples  that  carry  lessons  over  into  the  local  field 
are  plentiful  among  national  campaigns  no  longer 
recalled — Apitezo,  Force,  Egg-0-See,  and  a  thousand 
more.  Jordan  Marsh  and  Company  of  Boston,  on  the 
other  hand,  have  for  years  advertised  their  annual  birth- 
day sale.  Recently  they  sold  $500,000  worth  of  mer- 
chandise in  two  days  by  merely  listing  items  and  prices 
under  a  heading  descriptive  of  this  birthday  sale.  The 
cumulative  results  of  good  advertising  do  not  fall  much 
short  of  being  as  solid  as  government  bonds.  Certainly 
they  spring  from  several  of  the  bonds'  characteristics — 
concentration,  consistency  and  continuity. 

LESS  than  five  per  cent  of  the  merchants  in  America 
know  how  to  advertise,  according  to  one  manager. 
These  tested  methods  should  help  better  this  record. 

This  completes  an  analysis  of  the  five  methods  used 
by  the  sixty-two  merchants  in  bettering  returns  from 
their  advertising — right  merchandise,  truth,  individual- 
ity, news,  and  persistence.  The  standards  from  over  a 
thousand  stores  offer  an  opportunity  roughly  to  judge 


ADVERTISING  COSTS     89 

how  much  to  spend.  Yet  these  tested  methods  and  the 
carefully  gathered  costs  will  not  assist  to  the  full  extent 
of  their  possibilities,  unless  the  man  who  puts  them  to 
work  is  fired  by  enthusiasm  for  his  task.  Advertising 
that  pulls  is  only  written  by  those  who  live  for,  fight 
for,  the  attractions  it  describes  or  helps. 

And  a  place  in  the  distributive  chain  which  supports 
the  country,  either  as  a  producer,  a  jobber  or  a  retailer, 
is  well  worth  existence  and  struggle.  The  retailers, 
every  wise  manufacturer  understands,  are  uncertain 
when  cajoled,  unproductive  when  driven,  and  helpful 
when  appreciated.  They  can  practically  ruin  a  cam- 
paign involving  thousands  of  dollars  by  using  substitu- 
tion. The  makers  and  the  wholesalers  feed,  clothe  and 
shelter  the  nation.  Work  of  this  importance  warrants 
loyal  efforts  and  good  advertising. 

Still  the  advertising  manager  of  one  of  the  largest 
wholesale  houses  in  the  United  States  says  that  less  than 
five  per  cent  of  our  retailers  know  how  to  advertise.  If 
this  is  true,  it  may  come  about  because  the  attraction  in 
most  work — particularly  retailing — tarnishes  a  bit  with 
close  contact.  Nevertheless  the  good  and  the  power  in 
distributive  tasks  well  done  exists,  furnishing  a  strong 
appeal  for  strong  enthusiasm. 

Couple  this  enthusiasm,  the  five  successful  methods 
and  the  cost  standards  together — then  good  advertising 
comes  easily.  Two  men  express  this  fundamental  idea — 
the  reason  for  writing  this  article — clearly.  One  is  a 
jeweler  in  a  small  middle-western  town,  the  other  mer- 
chandise manager  of  the  largest  store  of  its  kind  in  the 
world. 

The  jeweler  says :  ' '  Enthusiasm  in  your  own  business 
is  one  of  the  big  foundation  stones  of  success  that  comes 
to  a  man.  This  only  means  the  ability  to  recognize 


90 SELLING  EXPENSE 

business  possibilities  or  opportunities;  the  capacity  to 
see  chances  to  get  business  in  the  everyday  contacts  and 
events  of  your  own  neighborhood;  and  the  strength  to 
hold  yourself  in  your  own  field  and  not  look  beyond  to 
the  improbabilities." 

This  is  what  the  merchandise  manager  thinks  of  his 
job:  "We  believe  that  the  function  of  retail  distribu- 
tion should  be  undertaken  as  a  social  service  equal  in 
dignity  and  responsibility  with  the  function  of  produc- 
tion, and  studied  with  equal  intensity  in  order  that  the 
service  may  be  performed  with  the  highest  efficiency, 
greatest  economy,  and  with  nothing  more  than  a  fair 
profit  to  the  retailer." 


PART  III 

WHAT  IT  COSTS  TO  RUN 
THE  STORE 


VI 
THE  COST  OF  DELIVERIES 


DELIVERY  wagons,  forty  or  fifty  miles  from  the 
big  New  York  stores  operating  them,  dot  long 
stretches  of  the  old  post  road  to  Boston  every  morning 
as  the  sun  tops  the  horizon.  They  carry  purchases,  big 
and  little,  rushed  overnight  in  high  powered  trucks  to 
suburban  distributive  stations.  Before  daylight,  smaller 
vehicles  swarm  away  from  these  branches  by  the  hun- 
dred; the  sun  finds  them  among  the  farms.  This  far 
flung  convenience,  the  big  stores'  supreme  effort  to  serve 
the  consumer,  levies,  on  the  average,  two  cents  from 
every  dollar  spent  in  New  York  city's  larger  retail  con- 
cerns. 

One  New  York  department  store  delivers  over  an  area 
equal  to  one-third  the  state  of  Massachusetts  at  a  cost 
exceeding  one  million  dollars  a  year.  A  Philadelphia 
company  sends  some  of  its  trucks  to  Atlantic  City.  Less 
important  firms  supporting  delivery  facilities  propor- 
tionately extensive,  usually,  on  account  of  their  small 
sales  volumes,  spend  more  out  of  each  dollar  for  deliv- 
eries than  the  large  stores. 

These  expenditures  are  factors  of  consequence  in  the 
rise  of  costs  to  do  business.  Twenty  years  ago  purchasers 
did  not  expect  deliveries.  They  then  spent  on  one  shop- 
ping trip  the  seventy-five  dollars  they  today  divide  over 


94 MERCHANDISING  EXPENSES 

fifteen  or  twenty.  During  the  eighties,  a  retailer  who 
occasionally  hitched  up  the  family  horse  to  deliver  a 
large  order  was  considered  exceptionally  accommodating. 

In  1883,  14.5  per  cent  of  the  sales  amply  satisfied  the 
combined  net  profits  and  costs  to  do  business  of  Alex- 
ander Findlay's  store  in  Madison,  Wisconsin.  By  1905 
it  took  21.5  per  cent  of  the  receipts  to  secure  a  smaller 
net  profit  and  cover  the  rising  costs.  By  that  year  costs 
alone  amounted  to  14.5  per  cent.  Three  cents  out  of 
every  dollar  went  for  deliveries.  Last  year  saw  the 
expenses  increase  to  18  per  cent  and  the  gross  profits 
to  22.5  per  cent.  Paul  Findlay  says  that  he  could  cut 
the  selling  price  on  one  staple  20  per  cent,  if  his  cus- 
tomers would  be  satisfied  with  delivery  facilities  half  as 
expensive. 

This  rapid  multiplication  of  the  conveniences  offered 
by  the  seller  to  the  buyer  changed  competition  to  its  very 
foundations.  The  goods  alone  no  longer  limit  the  com- 
petitive issue,  for  the  buyer  may  now  be  equally  inter- 
ested in  the  attractiveness  of  the  service  supplied  with 
the  wares.  As  surely  as  accurate  deliveries  form  the 
most  desired  share  of  the  seller's  service,  delivery  of 
some  sort  has  become  practically  a  condition  of  sale. 
The  seller  is  obliged  to  meet  competitors'  facilities. 
When  one  concern  makes  free  deliveries,  consumers  feel 
justified  in  expecting  equivalent  service  from  rivals. 

Thus  delivery  is  all  but  automatically  forced  upon  the 
distributors,  who  soon  find  their  markets  actually 
depending  upon  it.  Size  offers  no  escape,  for,  except  in 
certain  lines,  the  little  distributor  must  deliver  if  he 
expects  to  grow  into  a  big  distributor.  The  man  with  a 
small  sales  volume  often  finds  his  delivery  costs  a  ruin- 
ous burden;  the  man  with  a  large  trade  discovers  that, 
unless  he  is  continually  watchful,  pressure  makes  his 


CUTTING  DELIVERY  BILLS 


deliveries  irregular.  The  long  and  short  of  this  situa- 
tion is  that  the  average  distributor  either  delivers  his 
sales  or  goes  under.  True,  a  few  break  away  and  suc- 
ceed in  holding  their  trade.  Some  control  special  prod- 
ucts so  famous  that  they  can  successfully  withstand  the 
demand  for  free  delivery.  Others  pick  a  definite  trade 
class  which  willingly  carries  home  what  it  buys. 

Harry  Whittelsey,  one  of  the  owners  of  a  chain  of 
Kansas  "no-free-delivery"  stores,  handles  an  annual 
volume  of  $250,000  on  a  ten-per-cent  mark-up.  Duke 
Bowers,  who  runs  thirty-two  successful  stores  in  the 
South,  refuses  to  deliver  a  single  order  which  does  not 
total  five  dollars.  He  makes  money  on  a  fourteen  per 
cent  mark-up.  Cooperative  stores  often  profitably 
eliminate  delivery  expenses — Frank  W.  Chase,  who 
organized  a  cooperative  store  for  Boston  bank  employees, 
believes  that  the  large  cooperative  enterprise  can  save 
three  per  cent  by  eliminating  deliveries,  and  the  smaller 
stores  from  eight  to  ten  per  cent. 

JOHN  WANAMAKER  is  reducing  his  delivery  costs. 
Thousands  of  men  with  smaller  stores  are  puzzling 
over  the  same  problem.     Here  are  several  tested  solutions. 

Many  retailers  wedged  between  the  horns  of  a  delivery 
dilemma  compromise  with  their  customers.  They  either 
secure  the  acceptance  of  a  definite  delivery  schedule 
which  necessitates  the  placing  of  orders  between  certain 
hours,  or  offer  discounts  and  better  store  service  in  return 
for  a  total  release  from  delivery  expenses.  E.  W.  Dar- 
rell  in  New  England  delivers  to  schedule,  and  Abraham 
Rober4s  in  the  West  only  sends  wagons  daily  to  cus- 
tomers within  three  miles  of  his  store.  In  Akron,  Ohio, 
a  paying  market  declines  to  deliver,  but  maintains  a 
special  counter  for  quick  wrapping  and  attempts  to  make 


MERCHANDISING  EXPENSES 


its  prices  unusually  attractive.  Another  middle-western 
store  with  no  delivery  equipment  gives  attractive  pre- 
miums frequently  and  advertises  "  non-delivery "  sales 
at  cut  prices.  An  eastern  laundry  which  offers  a  ten 
per  cent  discount  to  those  who  bring  and  take  bundles, 
reports  a  three  per  cent  reduction  in  its  delivery  costs. 

Losses,  however,  face  the  average  distributor  who  tells 
his  customers,  "Hereafter  you'll  have  to  do  your  own 
carting."  The  consumer  forced  by  circumstances  to 
content  himself  with  crude  distributive  service,  including 
a  "no-free-deliveries"  policy,  usually  puts  up  with  what 
the  market  offers.  He  has  no  alternative.  But  as  soon 
as  circumstances  brighten,  he,  of  course,  desires  the  best 
service  his  money  can  buy.  There  is  no  happy  medium. 
The  consumer  either  says:  "I'll  do  the  lugging,"  or, 
"you  do  the  lugging,  and  see  that  you  do  it  right." 
Experience  shows  that  the  distributor  selling  to  con- 
sumers who  feel  they  can  afford  to  have  purchases 
delivered,  is  beckoning  trouble  when  he  \fires  the  delivery 
force. 

Witness  the  case  of  F.  Braastad  and  Company  at  Ish- 
peming,  Michigan.  They  put  their  prosperous  business 
on  a  "no-credit-no-free-delivery"  basis  last  September. 
They  wanted  to  find  out  just  how  much  Of  today 's  rising 
costs  and  soaring  living  expenses  belong  at  the  distribu- 
tor's door.  Therefore,  they  cut  prices  ten  per  cent 
throughout  the  store  and  in  return  asked  purchasers  to 
release  them  from  carrying  accounts  and  delivering 
goods.  The  cash  rule  was  accepted  by  their  customers, 
but  thumbs  went  down  with  great  emphasis  on  the  "no- 
free-delivery"  regulation.  The  owners  of  the  Braastad 
concern  discovered  what  they  desired  to  unearth — deliv- 
eries were  resumed.  Today  they  have  this  to  say  about 
their  little  tiff  with  rising  costs  and  the  consumer's 


CUTTING  DELIVERY  BILLS 


97 


ideas  about  service:  "Our  cash  system  has  been  an 
unqualified  success.  But  there  were  so  many  objections 
to  no  delivery  that  we  finally  had  to  go  back  to  the  deliv- 
ery system,  although  we  are  now  making  less  frequent 


Itemized  Costs  of  Doing  Business  in  Representative  Lines 


FIGURE  VIII:  Each  line  in  this  chart  represents  itemized  costs  of  do- 
ing business.  As  the  lines  progress  to  the  right,  the  items,  including 
delivery  expenses,  are  added ,  until  total  costs  appear  at  the  extreme  right 

deliveries  than  before.  It  seems  that  the  majority  of  the 
people  want  their  goods  delivered  and  are  willing  to  pay 
for  it." 

So  much  for  evidence  that  making  deliveries  has  evi- 
dently crystallized  into  a  sort  of  distributive  law  of  the 
Medes  and  Persians.  Under  these  circumstances  it  is 

7 


98 MERCHANDISING  EXPENSES 

necessary  to  establish  two  sets  of  facts — first,  how  much 
it  costs  to  deliver  representative  stocks;  secondly,  how 
these  costs  may  be  reduced.  From  well  over  a  thousand 
stores,  scattered  through  every  state  in  the  Union,  SYS- 
TEM has  collected  figures  on  the  cost  of  making  deliv- 
eries. These  figures,  whether  from  horse,  electric  or 
gasoline  equipment,  and  without  regard  to  the  size  of 
the  stores  tabulated,  when  averaged,  give  national  stand- 
ards from  which  it  is  possible  to  judge  the  cost  of  carry- 
ing purchases  to  the  doorstep  of  the  American  consumer. 
These  national  delivery  cost  standards,  which  include 
wages  and  all  items  directly  connected  with  deliveries, 
follow : 

Percentage 
of  Sales 

Groceries    2.53% 

Department    stores 2.01% 

Vehicles   and   implements 1.06% 

Dry    goods 1.02% 

Furniture    94% 

Hardware    91% 

Clothing 65% 

Drugs     51% 

Shoes  46% 

Jewelry   09% 

Variety  goods No  deliveries 

These  standards  give  an  average  for  the  country 
against  which  individual  figures  may  be  checked  for 
extreme  variations  from  normal  conditions.  An  abso- 
lute check  on  individual  delivery  expenditures  is  of 
course  impossible  without  allowance  for  widely  varied 
local  factors  and  conditions. 

In  Shelbyville,  Indiana,  one  retailer  says  he  pays  no 
delivery  expenses  because  he  combines  recreation  with 
rising  costs  and  delivers  in  his  touring  car!  A  young 
man,  who  for  exactly  two  months  had  his  name  on  a  shop 
door  facing  the  main  street  of  a  Chicago  suburb,  favored 


CUTTING  DELIVERY  BILLS 99 

the  same  idea,  but  unfortunately  lacked  the  touring  car. 
He  was  so  frequently  away  from  his  store  making 
deliveries  that  one  night  the  sheriff  locked  up  shop  for 
him.  In  a  medium-sized  middle-western  city  a  depart- 
ment store  delivers  annual  sales  of  $225,000  for  $3,433.46, 
spent  to  hire  a  wagon,  two  horses,  a  man  and  two  boys. 
A  few  miles  away  a  dry  goods  store  delivers  sales  of 
$16,000  for  about  $32  invested  in  the  time  of  the  boy 
who  does  the  sweeping. 

Although  pavements,  grades  and  other  physical  con- 
ditions increase  the  delivery  cost  variations  caused  by 
corresponding  individual  circumstances,  it  is  possible 
accurately  to  fix  the  range  over  which  the  usual  cost  per 
package  delivered  will  vary.  Department  stores  find  it 
costs  them  from  five  to  eight  cents  to  deliver  the  average 
package,  regardless  of  size.  The  run  of  distributors  pay 
from  five  to  eleven  cents.  A  St.  Louis  department  store 
found  that  it  cost  four  cents  to  deliver  a  package  by 
gasoline ;  five  to  five  and  a  half  cents  by  electricity ;  and 
seven  to  seven  and  a  half  cents  by  short  team  hauls. 
These  costs,  however,  do  not  include  depreciation. 

One  of  the  largest  department  stores  in  the  Middle 
West  makes  deliveries  by  gasoline  and  electric  trucks  at 
a  cost  of  about  3.75  cents  a  package  within  the  city 
limits  and  5.25  cents  in  the  suburban  sections.  A  small 
eastern  store  makes  a  record  of  3.75  cents  a  package  on 
account  of  the  numerous  level  streets  in  its  delivery  area. 
A  New  York  store  delivered  1,168,511  packages,  at  an 
average  cost  of  6.43  cents  each,  by  gasoline,  and  1,376,- 
030,  by  horses,  for  8.46  cents.  A  clothier  in  the  same 
city  makes  his  deliveries  for  7.4  cents  a  package  by  two 
gasoline  automobiles  which  average  sixty  miles  a  day. 

It  is  also  possible  to  secure  comparisons  through  aver- 
age costs  of  typical  equipment.  For  instance,  the  aver- 


100 MERCHANDISING  EXPENSES 

age  team  and  wagon,  with  horses  and  men  in  reserve, 
will  cost  about  six  dollars  and  a  half  a  day,  and  a  three- 
ton  gasoline  truck,  from  nine  to  ten  dollars. 

It  is  to  be  expected  that  concerns  delivering  every  sale 
stand  heavier  delivery  expenses  than  those  handling 
stocks  which  are,  at  least  in  part,  carried  away  by  pur- 
chasers. Coal  and  ice  companies,  for  example,  count 
delivery  one  of  their  heaviest  expenses.  The  largest 
coal  company  in  Chicago  spends  over  36  per  cent  of  its 
gross  profit  for  teaming  and  cartage.  Wholesalers  usu- 
ally pay  more  than  the  retailer  for  deliveries.  One 
wholesale  firm  recently  found  that  its  average  cost  to 
deliver  each  of  3,214  packages  to  be  11.5  cents.  Another 
wholesale  concern  delivers  its  packages  for  9.7  cents  each. 
One  Chicago  jobber  figures  that  it  costs  18  cents  to 
deliver  each  package  he  sells. 

SAVINGS  in  the  delivery  department  depend  in  most 
instances  on  these  principles  and  detailed  methods 
which  have  been  tested  out  by  going  concerns. 

With  these  standards  available  for  checking  up  deliv- 
ery costs,  the  second  problem  is  to  find  ways  for  securing 
reductions.  Economies  in  all  types  of  delivery  systems 
first  of  all  depend  on  care  in  routingX  The  delivery 
area  is  usually  divided  into  sections  which  enable  the 
heaviest  loads  to  be  routed  over  the  best  roadbeds,  and 
the  lighter  runs  through  the  poorer  streets.  One  store 
superintendent  finds  it  profitable  to  make  a  tour  of  his 
delivery  routes  at  regular  intervals,  in  order  to  pick 
the  best  roads  and  check  on  street  improvements.  It  is 
also  important  to  find  the  hours  when  the  main  thorough- 
fares and  the  most  congested  bridges  are  least  in  demand. 
Whether  a  distributor  handles  a  small  or  a  large  sales 


CUTTING  DELIVERY  BILLS 101 

volume,  a  careful  study  of  routing  schedules  from  time 
to  time  is  worth  while. 

But  the  most  carefully  selected  routes  may  prove 
expensive  if  shipping  facilities  are  not  adequate.  A 
delivery  begins  from  the  moment  the  package  is  wrapped, 
not  from  the  moment  it  is  put  on  a  wagon  or  truck. 
Abnormal  delivery  expenses  may  start  on  the  shipping 
floor  as  well  as  on  the  road.  A  rapid  and  accurate  sort- 
ing of  packages  in  the  delivery  room  permits  movable 
equipment  to  hold  down  costs.  A  western  grocer  who 
understands  this  fact  has  his  shipping  room  divided 
into  bins.  Each  order  is  given  a  bin  number  by  the 
cashier  before  it  is  filled.  The  clerks  send  the  goods  to 
the  proper  bin  to  be  checked  over  for  errors  and  placed 
in  baskets  colored  to  designate  the  routes.  Bulk  staples 
—on  hand,  wrapped,  in  the  delivery  room — are  assem- 
bled  by  the  shipping  clerks.  The  drivers  simply  pick 
out  baskets  of  the  proper  color,  the  clerks  stay  in  the 
front  of  the  store  ready  for  sales,  and  every  order  is 
checked  twice. 

Reductions  in  delivery  costs,  once  routes  and  shipping 
facilities  test  up  satisfactorily,  probably  most  frequently 
result  from  better  ways  for  handling  the  delivery  force. 
The  drivers  have  it  in  their  power  either  to  conserve 
time  and  equipment  or  to  overlook  wastes.  The  driver 
of  a  valuable  truck  is  in  a  position  to  save  his  employer 
money  or  deluge  him  with  repair  bills.  The  men  out  on 
the  road  with  deliveries  are  exactly  like  other  men — 
they  need  incentive  to  keep  down  expenses.  Their 
wages  are  usually  not  an  incentive,  but  just  the  ordinary, 
expected  remuneration.  Therefore,  distributors  often 
find  it  profitable  to  reward  the  drivers  with  either 
bonuses  or  prizes. 


102 MERCHANDISING  EXPENSES 

The  three  ways  for  reducing  delivery  costs  detailed 
above — a  better  handling  of  routes,  men  and  shipping 
facilities — do  not  involve  the  customer,  except  as  a  pas- 
sive recipient  of  packages.  There  are,  however,  two 
methods  which  do  concern  the  purchaser — fewer  returns 
and  more  "take  withs."  Returns  and  exchanges  worry 
the  big  merchants  at  both  retail  and  wholesale  about  as 
much  as  any  single  item  listed  with  the  rising  costs.  The 
smaller  stores,  on  the  other  hand,  find  returns  less  of  a 
problem.  One  of  the  largest  stores  in  New  England, 
for  instance,  reports  about  28  per  cent  of  its  charge 
packages  returned  and  nearly  30  per  cent  of  the  C.  0.  D. 
orders. 

Returns  necessitating  a  rehandling  of  goods  in  equally 
large  percentages'  of  the  sales  trouble  most  of  the  larger 
stores.  They  have  been  reduced  in  many  concerns  by 
strictly  enforcing  return  dates  and  declining  to  re-stock 
goods  on  which  special  lead  tags  have  been  broken.  Since 
there  is  no  profit  until  a  customer  is  found  for  wrapped 
goods,  some  concerns  hire  a  "send  again"  clerk  to  watch 
returns.  This  clerk  checks  on  the  drivers  with  return 
post  cards,  corrects  wrong  addresses,  and  secures  com- 
parative prices  when  a  customer  refuses  goods  on  the 
ground  that  they  are  offered  cheaper  elsewhere.  If 
members  of  the  sales  force  fall  into  the  habit  of  sending 
C.  0.  D.  packages  to  addresses  selected  at  random  out 
of  the  directory,  in  order  to  swell  their  sales  records,  the 
"S  A"  clerk  calls  a  halt. 

In  short,  no  returned  order  is  put  back  into  stock  until 
an  effort  has  been  made  to  trace  causes.  But  the  privi- 
lege to  return  packages,  like  delivery  service,  is  today 
practically  a  condition  of  competition.  A  marked  reduc- 
tion in  the  percentage  of  returned  orders  to  completed 


CUTTING  DELIVERY  BILLS 


103 


WHAT  IT  COSTS  to  DELIVER  by  ELECTRICITY 

"The  assumed  price"  includes  a  complete  vehicle  with  the  average  type 
of  body.  Increases  or  decreases  in  these  prices  which  are  not  radical  will 
not  seriously  alter  the  operation  charges.  These  figures  were  presented  be- 
fore the  Electric  Vehicle  Association  of  America  by  William  P.  Kennedy. 


Capacity,  Ibs   

700 

VEHICLES 
1,000       2,000 
$2,200     $2,600 

$132        $156 
220          260 
22            28 
100          100 

3,000 
$3,000 

$180 
300 
30 
100 

$610 

$240 
225 
90 

$555 

$240 
180 
180 

Assumed  price 

$1  500 

Fixed  charges  — 
Interest  at  6%  

.    $  90 

Depreciation  at  10% 

150 

Fire  insurance  at  1  %  
Liability  insurance  

Maintenance  — 
Battery  upkeep   .    . 

15 
100 

$355 
$170 

$474 

$180 
158 
60 

$544 

$200 
212 
80 

Tire  upkeep 

119 

Mechanical  parts  upkeep  .... 

50 

Garaging  — 
Electric  power  

$339 
$120 

$398 

$140 
180 
120 

$492 

$170 
180 
160 

Storage  and  washing   ...    . 

180 

Garage  labor 

100 

Annual  operating  cost  

$400 
$1,094 

$440 
$1,312 

$4  20 
2  00 

$510 
$1,546 

$4  85 
2  50 

$600 
$1,765 

$5  66 
2  50 

$8  16 

10,000 
$4,500 

$270 
450 
45 
100 

Daily  cost  (312  days) 

$3  51 

Drivers,  daily  pay  

2  00 

Total  daily  cost 

$5  51 

$6  20 

.  4,000 
$3400 

$7  35 

7,000 
$4,000 

$240 
400 
40 
100 

Capacity  Ibs  .  . 

Assumed  price 

Fixed  charges  — 
Interest  at  6%  

$204 

Depreciation  at  10% 

340 

34 

Liability  insurance  

100 

Maintenance  — 
Battery  upkeep  

$678 

$285 

$780 

$365 
340 
125 

$865 

$415 
575 
150 

Tire  upkeep 

306 

Mechanical  parts  upkeep 

.      100 

Garaging  — 
Electric  power  

$691 
.    $300 

$830 

$360 
180 
250 

$1,140 

$400 
180 
300 

Storage  and  washing  

180 

Garage  labor  

200 

$680 
$2049 

$790 
$2,500 

$8  01 
3  00 

$880 
$2,885 

$9  25 
3  00 

Daily  cost  (312  days) 

.  $6  57 
2  50 

Total  daily  cost  ...........................  $907    $1101    $1225 


104 MERCHANDISING  EXPENSES 

sales  is  not  to  be  expected.  It  is,  however,  worth  the 
expense  to  scrutinize  and  check  wrong  addressing  and  lax 
delivery  methods. 

Cutting  delivery  costs  by  getting  customers  to  carry 
.away  packages  is  largely  a  question  of  wits.  Since  a 
customer  with  a  labeled  package  becomes  a  walking 
advertisement,  and  as  well  because  it  is  more  expensive, 
on  account  of  the  numerous  "  shif tings "  and  losses 
encountered,  to  deliver  a  small  package  than  a  large  one, 
profits  result  when  purchasers  do  their  own  delivering. 
A  customer  with  money  to  spend  is,  however,  a  privi- 
leged character — he  knows  it  and  you  know  it.  Use 
anything  short  of  ambassadorial  diplomacy  in  suggest- 
ing to  him  that  you,  as  a  distributor  beset  with  high 
costs,  would  appreciate  his  carrying  home  a  two-ounce 
package,  and  your  counters  will,  as  likely  as  not,  never 
see  him  again. 

ONE  way  to  reduce  delivery  bills  is  to  persuade  cus- 
tomers to  carry   away   more   packages  themselves. 
It  is  a  delicate  task,  but  these  methods  have  succeeded. 

A  famous  store  once  thought  it  had  a  plan  which  would 
entice  customers  into  taking  home  the  lighter  parcels. 
The  superintendent  of  this  store  decided  that  purchasers 
rightly  enough  objected  to  carrying  packages  bearing 
the  firm's  label.  So  he  had  a  paper,  distinctively  ruled 
but  without  a  letter  of  type,  placed  at  the  bundle  coun- 
ters. "They  won't  know  it,"  he  explained  to  the  presi- 
dent, "but  that  ruled  paper  will  be  more  of  an  adver- 
tisement than  a  label  in  red  letters  a  foot  high."  Just 
there  he  fooled  himself.  The  purchasers  soon  discovered 
that  the  unusual  paper  practically  shouted  the  source  of 
their  purchases.  They  rebelled. 

Successful   methods   for  increasing   the   number   of 


CUTTING  DELIVERY  BILLS 


105 


* '  take  withs ' '  exist,  however.  For  example, ' '  take  with ' ' 
packages  are  wrapped  in  particularly  attractive  holiday 
paper  at  Christmas  time  by  some  stores.  Customers 
want  the  paper  keenly  enough  to  carry  home  small  pur- 
chases. The  most  successful  plan  of  all,  however,  is  to 
say  nothing  at  all  about  delivering  the  smaller  packages. 

TYPICAL  MOTOR  TRUCK  DELIVERY  COSTS 

In  the  upper  portion  of  this  table  appear  the  savings  actually  secured  by 

distributors  who  have  replaced  horses  with  trucks.     Below  is  given  the  cost 

of  a  typical  day's  work  by  a  power  wagon  and  a  team 


Location  and  Business 

Type  of 
Truck 

Miles 
per   Day 

(av.) 

Loads  or 
Stops 
(pk*s.) 

Cost 

Horses 
Re- 
placed 

Saving 
% 

East  —  heavy  hardware.  . 
East  —  dry  goods 

1  .000-lb.  el. 
3-ton  gas 

32 
46 

205 

$90.00  mo. 
9  74  d  ;y 

2 
12 

30 
45 

East  —  dry  goods  
Middle  West  coal 

1  ,500  Ib.  gas. 

55 

27  92 

310 
25  13* 

.05  pkg. 

11  OQ  rtav 

4 

24 

Mirlrilr  Wrer    ••fiirnifrurr 

00 

00  1 

Middle  West  dry  goods 

1  000  Ib  gas 

53 

195 

003 

Middle  West  dry  goods 

2  000  Ib  gas 

EQ 

195 

nc  nl,~ 

fi9 

1  on 

West  —  dept.  store  

1,  000-lb.  el. 

o  of\(\  lu    _a<. 

40 
TOT 

135 

.U»  pkg. 

40 

$14  ocf 

t  tor  11  hours 


t  a  day 


THE  HORSE  vs.  THE  POWER  WAGON 


Wagon  and  Team 

Three-ton  Truck 

Original  cost  

.     $910.00 

$3,500.00 

Interest  at  5  per  cent  

3.79 

14.58 

Depreciation  at  15  per  cent  

11.37 

(at  203 

j)  58.33 

Repairs  

9.20 

14.10 

Insurance  

1.00 

12.90 

License'  

.80 

2.00 

Feed  

25.00 

(tires)  . 

31.10 

Shoeing  

3.00 

(gas.).. 

31.66 

Miscellaneous  

9.00 

{oil)  .  .  . 

5.80 

Wages  (driver  and  jumper)  

93.00 

(driver 

and  jumper)            9868 

Rent  

10.00 

(garage; 

10.00 

Cost  per  day  (27):.  

.     $    6.15 

$      10.34 

Simply  wrap  up  the  purchase  and  hand  it  to  the  cus- 
tomer with  the  usual  pleasant  word  or  two  about  other 
goods.  This  is  sound  psychology,  for  if  you  ask  a  cus- 
tomer, "Do  you  want  this  delivered ?"  he  will  answer, 
nine  times  out  of  ten,  "Please.'7  His  attitude  is  reason- 


106 MERCHANDISING  EXPENSES 

able  enough — he  says  to  himself,  "It  does  not  cost  any- 
thing and  everybody  has  things  delivered."  But  say 
nothing,  suggest  nothing,  and  he  is  not  tempted  to  object 
to  carrying  a  package  of  pocket  size.  Naturally,  clerks 
need  to  use  ordinary  discretion.  They  should  not  expect 
customers  to  take  home  large  packages. 

There  is  still  another  successful  plan  for  making  deliv- 
eries less  expensive — cooperative  delivery  systems.  Two 
types  have  been  tested:  independent  companies  which 
charge  the  distributor  in  proportion  to  the  number  of 
packages  handled  for  him,  and  cooperative  arrangements 
between  the  retailers  themselves. 

In  Boston  a  delivery  company  is  making  money  and 
reducing  delivery  costs  for  several  stores.  R.  W.  Varde- 
man  controls  a  company  that  makes  a  business  of  deliver- 
ing for  western  retailers.  Since  deliveries  are  made  in 
all  directions  at  once,  goods  get  to  customers  quicker, 
and  the  retailers  can  close  up  for  the  night  earlier,  than 
when  they  deliver  individually.  The  savings  made  by 
this  method  have  cut  individual  delivery  costs  anywhere 
from  25  to  40  per  cent. 

The  retailers  in  twenty-nine  towns  and  cities  in  Mis- 
souri and  Kansas  use  such  a  system.  Here  are  some 
figures  on  the  equipment  savings  which'result — in  three 
towns  fifty-nine  wagons  and  one  truck  have  been  dis- 
carded : 

Wagons  Wagons 

Stores            Now  Formerly 

Using           Used  Used 

Independence,   Mo. . .     22                11  35 

Columbia,  Mo 16                 10  32 

Mexico,    Mo 11                   6  19 

Equally  worthwhile  savings  appear  when  retailers 
cooperate  among  themselves,  although  individual  inter- 
ests and  desires  frequently  wreck  arrangements  of  this 


CUTTING  DELIVERY  BILLS 107 

type.  In  Geneseo,  New  York,  seven  groceries,  three  dry 
goods  stores  and  one  meat  market  handle  their  deliv- 
eries cooperatively  at  a  sixty  per  cent  saving  over 
previous  costs. 

Capably  managed  gasoline  and  electric  trucks  reduce 
delivery  costs  when  they  handle  a  suitable  volume  of 
business.  A  power  wagon  will  lose  money  if  managed 
like  a  team,  however.  Because  it  represents  a  much 
larger  investment  it  involves  a  serious  loss  when  idle. 
Therefore,  quick  loading  and  long  hauls  underlie  motor 
truck  delivery  systems,  for  a  fully  loaded  power  wagon 
on  the  move  is  usually  a  money  maker.  Trucks  have  as 
yet  failed  to  replace  horseflesh  on  short  hauls  with  numer- 
ous stops,  except  in  the  case  of  loads  quickly  handled  in 
bulk,  like  coal.  Horses  also  prove  more  profitable  over 
the  worst  roads.  With  these  restrictions  understood,  the 
power  truck  may  be  relied  upon  to  offer  speed,  distance, 
capacity,  extended  service,  advertising  and  immunity  to 
weather  conditions,  if  there  is  enough  work  to  supply 
capacity  loads.  The  ideal  conditions  for  its  use  are  long 
hauls,  infrequent  stops  and  large  loads. 

Careful  routing,  adequate  shipping  facilities,  a  well 
selected  personnel,  cooperative  arrangements,  fewer 
"returns,"  more  over-the-counter  deliveries,  and  motor 
trucks — these,  then,  are  seven  tested  methods  for  cutting 
delivery  costs.  They  include,  as  described  in  this  article, 
the  most  widely  used  plans.  Many  distributors,  how- 
ever, have  tried  out  plans  of  their  own  for  getting  better 
profits  from  the  details  of  handling  orders.  During 
slack  hours  an  Indiana  retailer  of  men's  furnishings 
sends  his  clerks  on  delivery  trips.  Ice  and  milk  com- 
panies supply  their  customers  with  large  placards  which 
designate  the  quantity  desired,  so  that  the  drivers  need 
not  leave  their  wagons  to  make  inquiries.  Others  get 


108 MERCHANDISING  EXPENSES 

more  than  an  ordinary  amount  of  advertising  out  of  their 
delivery  wagons  by  placing  on  the  sides  bulletin  boards 
announcing  sales  or  by  painting  on  the  tops  advertise- 
ments which  attract  attention  from  upper  floors. 

Taken  by  and  large,  the  delivery  problem  is  one  of 
watchfulness  for  useless  motions.  When  a  wagon 
breaks  down  that  has  needed  repairs  for  a  long  time, 
wasted  motions  result.  When  an  order  gets  to  the 
wrong  door,  useless  motions  redirect  it. 

So  it  is  with  all  of  distribution,  whether  at  wholesale 
or  retail.  A  sheriff's  sale  stands  for  hundreds  of  wasted 
motions.  Therefore,  in  delivering  their  sales,  as  in  mak- 
ing them  and  preparing  for  them,  the  men  who  run 
stores  find  their  most  attractive  savings  in  seeing  that 
every  motion  counts. 


VII 

BAD  DEBTS  AND  HIDDEN 
LOSSES 


BAD  debts  sent  one  business  man  on  the  rocks  every 
twenty-four  hours  last  year.  These  failures  cost 
us  forty  thousand  dollars  a  day — enough  to  hire  five 
hundred  million  dollars  of  capital.  And  1913  was  not 
an  abnormal  year. 

Add  these  fourteen  millions  to  the  cost  of  supervision, 
plus  the  interest  charges,  and  you  have  the  price  we  pay 
for  credit.  It  is  not  an  unreasonable  amount,  either, 
when  matched  with  the  advantages  secured.  Take  the 
retailer  as  a  typical  user  of  credit  in  satisfying  the  con- 
sumer's wants.  His  credit  connections  are  two-sided: 
he  receives  datings  from  manufacturers  or  wholesalers 
and  probably  gives  his  customers  accommodations.  This 
means  that  the  firms  in  the'primary  markets  have  some 
of  their  assets  on  the  retailers'  shelves  and  that  the  retail- 
ers transfer  a  portion  of  their  stocks  from  their  own 
shelves  to  customers'  homes. 

It  is  evident  enough  that  an  increase  in  these  goods  at 
customers'  homes  causes  smaller  net  profits,  for  larger 
stocks,  whether  held  within  the  stores,  at  warehouses,  or 
in  customers'  hands,  slow  down  the  turnover  rate.  Sup- 
pose, for  the  sake  of  illustration,  that  a  store  is  selling 
one  thousand  dollars'  worth  of  merchandise  a  day  at  a 
cost  of  doing  business  equal  to  twenty  per  cent  of  these 


110 MERCHANDISING  EXPENSES 

sales  and  at  a  gross  profit  of  twenty-five  per  cent. 
Assume  the  average  stock  on  hand  to  be  worth  thirty 
thousand  dollars  at  retail,  or  enough  to  care  for  thirty 
days'  sales.  Now,  if  this  store  also  allows  charge 
account  customers  to  keep  additional  stock  worth  twenty 
thousand  dollars — twenty  days'  sales — at  their  homes, 

on  credit,  its  net  profits  will  be :    or.     OAX360,  or  36%. 

OU-J-  £t\J 

Next  assume  that  the  manager  of  the  store  allows  the 
total  of  the  accounts  due  from  customers  to  climb  until 
it  equals  thirty  thousand  dollars — thirty  days'  sales — 

25 20 

and  see  what  happens  to  his  net  profit :  -577  X  360,   or 

ou-j-oU 

30%.    A  drop  of  six  per  cent. 

Thus  credit  is  demonstrated  to  be  a  merchandising 
problem,  in  principle  exactly  like  the  rest  of  the  activi- 
ties of  the  factory  or  store.  It  requires  capital — and 
the  man  who  has  capital  enough  to  keep  some  of  his 
stock  in  customers'  cupboards  will  probably  in  the  long 
run  interest  a  more  profitable  trade  than  his  competitor 
who  cannot  secure  money  enough  to  offer  this  con- 
venience. 

Since  the  capital  taken  by  the  credit  end  of  a  concern 
adds  interest  charges  to  the  costs,  in* addition  to  the 
supervisory  expenses  and  losses  from  defaulted  debts, 
business  men  ask :  " Why  not  sell  for  cash?"  Twenty- 
five  years  ago  the  retailers  agitated  this  "Cash  or 
credit?"  question;  today,  with  rising  costs  pressing 
down  net  profits,  they  again  turn  to  it.  Certain  classes 
of  trade — willing  to  carry  home  purchases  and  forego 
expensive  service — buy  for  cash.  Stores  stocked  and 
managed  to  meet  their  demands  succeed  on  a  cash  basis. 
But  when  consumers  able  and  willing  to  pay  for  free 
delivery,  varied  service,  and  charge  account  facilities  are 


LOSSES  AND  BAD   DEBTS 


111 


handled,  an  attempt  to  sell  exclusively  for  cash  usually 
falls  flat.     It  is  admittedly  more  convenient  to  charge 


Net  Profits  (One  Tunwwi) 

Cash  Discounts 

Casts  of  Doing  Bustoess 


FIGURE  IX:  This  and  the  chart  on  page  119  graphically  average  cost 
figures  gathered  by  SYSTEM,  various  organizations  and  individual  investi- 
gators. The  lines  A,  B  and  C  join  the  profits,  costs  and  discounts 

purchases;  the  standard  of  living  has  advanced  until  it 
apparently  includes  credit  as  a  matter  of  course.  The 


MERCHANDISING  EXPENSES 


LOSS  IN  WEAPPING 

Shrinkage  and  losses  in  supplies  like 
paper  come  from  lack  of  instruction 
for  clerks  in  right  methods  of  wrap- 
ping. Modern  equipment  automatically 
prevents  many  of  these  wastes. 


practice  of  ordering  by  telephone  almost  automatically 
increases  credit  transactions. 

As  a  result,  credit  has  become  "cheap"  and  accounts 
are  frequently  solicited.  The  average  merchant  finds 
that  he  is  practically  forced  to  either  act  as  banker  for 
a  large  portion  of  the  community's  transactions  or  lose 
trade. 

HOW  much  do  you  lose  a  year  through  bad  debts? 
If  you  sell  on  credit,  it  is  probably  a  noticeable 
item.     Here  are  ways  by  which  others  have  reduced  it. 

It,  therefore,  becomes  increasingly  difficult  to  hold  to 
a  safe  balance — sane  credits  and  a  maximum  sales  vol- 
ume. The  danger  signal  for  unwise  credits  is  the  loss 
from  bad  debts,  provided  the  capital  involved  and  the 
supervisory  charges  do  not  overtax  the  resources  of  the 
particular  business  considered.  The  individual  mer- 
chant's resources  determine  how  much  he  may  safely 
invest  in  credit  or  stock  in  customers '  homes ;  the  aver- 
age credit  department  costs  from  four-tenths  to  six- 
tenths  of  one  per  cent  of  the  net  charge  sales. 

The  amount  of  loss  which  can  safely  be  taken  from 
bad  debts  also  varies  with  the  type  of  trade  handled  and 


LOSSES  AND  BAD  DEBTS 


113 


LOSS   IN    TYING 

There  is  a  wrong  and  right  way  to  wrap 
and  tie  a  parcel.  At  a  common  wrapping 
counter  much  waste  could  be  reduced  by 
making  the  most  skillful  packer  the  in- 
structor for  a  group. 


the  class  of  goods  stocked.  F.  A.  Pruitt  of  Edinburgh 
says  that  he  lost  five  thousand  dollars  in  twenty  years 
through  bad  debts  and  cut  his  losses  one  hundred  dollars 
a  year  by  dropping  one-half  of  his  credit  accounts.  John 
Harvey,  secretary  of  the  Retail  Grocers'  Association  of 
Kansas  City,  figures  that  a  one  per  cent  loss  is  normal 
for  an  eighteen-thousand-dollars-a-year  grocery  business. 
John  A.  Green,  secretary  of  the  National  Retail  Grocers ' 
Association,  believes  a  lower  figure  is  attainable.  He 
says:  ""We,  as  an  organization,  have  done  wonderful 
things  along  educational  lines.  No  longer  do  the  losses 
from  accounts  figure  in  the  cost  of  doing  business.  Re- 
ports from  all  over  the  country  tell  us  that  the  loss  from 
this  source  is  from  one-tenth  of  one  per  cent  to  one- 
quarter  of  one  per  cent." 

Evidently,  then,  practically  everybody  agrees  that  a 
credit  business  brings  about  losses  from  bad  debts.  How 
much  this  loss  will  be  in  individual  cases  depends  on 
local  conditions  and  whether  a  generous  or  a  close  credit 
policy  is  followed.  But  loss  is  to  be  expected.  Careful 
business  men  anticipate  this  loss  and  build  a  reserve  in 
cash  to  take  care  of  it  by  laying  aside  some  of  the  money 
from  sales.  Further,  when  the  loss  goes  beyond  normal 


114 


MERCHANDISING  EXPENSES 


LOSS  IN  WEIGHING 

Prepackaging  of  goods  reduces  losses  from 
overweights.  Accuracy  should  be  the  in- 
flexible rule  in  measuring.  Modern  scales 
go  a  long  way  in  eliminating  the  "per- 
sonal equation. ' ' 


limits,  they  recognize  that  something  is  wrong  with  their 
credit  policy  and  take  in  sail. 

To  fix  the  amount  to  put  away  as  a  reserve  and  the 
figure  that  will  measure  normal  losses  requires  standards 
which  cross  section  hundreds  of  going  stores.  Averages 
that  merge  individual  characteristics  into  normal 
percentages  then  appear.  Careful  investigators  have 
analyzed  credit  figures  from  the  books  of  about  one 
thousand  stores.  The  resulting  standards,  after  allow- 
ance has  been  made  for  unusual  local  factors,  supply  a 
rough  check  for  gauging  retail  credit  methods  and  deter- 
mining the  proper  reserves.  These  standards  follow — 
they  represent  percentages  of  the  net  total  sales  and  only 
refer  to  totals  of  accounts  actually  written  off  the  books 
as  worthless: 

Furniture    1.94% 

Groceries 47% 

Clothing     34% 

Vehicles   and   implements 33% 

Hardware    31% 

Jewelry    21% 

Dry    goods 21% 

Department    stores 19% 

Drugs    19% 

Shoes    10% 

Variety  goods no  loss 


LOSSES  AND  BAD  DEBTS  115 


LOSS  IN  CUTTING 

The  salesman  who  delivers  more  than 
thirty-six  inches  for  every  yard  sold  Tobs 
his  employer 's  profit  account.  ' '  Good 
measure"  is  the  easiest  and  most  dan- 
gerous of  store  habits. 


When  losses  from  bad  debts  mount  above  these  stand- 
ards, and  there  are  no  explanatory  local  conditions,  it  is 
at  least  reasonable  to  cast  about  for  ways  of  reducing 
them.  Keeping  up  with  rising  costs  is  a  disheartening 
grind  unless  all  avoidable  losses  have  been  carefully  cut 
from  your  cost  of  doing  business.  Eliminating  unneces- 
sary leaks  opens  the  way  for  using  broader  plans  that 
build  profits  in  spite  of  higher  costs. 

The  best  way  to  reduce  costs  through  checking  losses 
is  to  study  the  methods  of  others  who  have  been  success- 
ful in  meeting  corresponding  situations.  In  addition 
to  these  specific  figures  on  losses,  investigation  has  devel- 
oped the  most  successful  methods  for  reducing  this 
expense  used  by  two  hundred  and  eighty-six  merchants. 
These  tested  methods,  with  but  three  exceptions,  group 
under  six  broad  policies:  (1)  securing  a  distinct  under- 
standing of  terms  and  limits;  (2)  handling  customers 
according  to  their  individual  situations;  (3)  cooperating 
with  fellow  merchants;  (4)  making  collections  monthly ; 
(5)  being  impartial;  and  (6)  securing  new  accounts  on 
the  basis  of  the  additional  convenience,  instead  of  the 
unusual  ease,  with  which  goods  may  be  purchased. 


116 MERCHANDISING  EXPENSES 

It  will  prove  profitable  to  discuss  in  detail  each,  of 
these  six  plans  which  help  control  rising  costs  by  lower- 
ing the  number  of  accounts  that  go  bad.  Take  the  first 
— seeing  that  the  proposition  is  clearly  understood  when 
the  account  is  opened.  After  deciding  whether  your 
credit  policy  is  going  to  be  generous  or  restricted,  the 
next  step  is  to  impress  upon  customers  rules  which  will 
carry  out  these  plans.  When  a  man  asks  for  credit,  he 
is  more  often  than  not  in  the  position  of  seeking  a  favor 
—you  can  "talk  turkey "  to  him  if  you  use  ordinary 
tact. 

Credit  should  not  be  given  if  it  does  not  mean  an 
advantage  to  the  merchant;  and  if  extended  to  a  con- 
sumer who  has  neither  the  restraint  nor  the  funds  to 
use  a  charge  account  properly,  trouble  is  ahead.  Not 
long  ago  a  man  failed  for  thirty  cents  on  the  dollar  in 
Bushville  because  he  was  so  anxious  to  do  business  at 
any  cost  that  he  lost  ten  thousand  dollars  through  unwise 
credits  in  two  years. 

It  is  harmful,  of  course,  unless  the  capital  in  the  busi- 
ness is  being  overtaxed,  to  go  too  far  in  refusing  credit, 
once  it  has  been  decided  to  grant  terms.  The  average  man 
is  honest,  and  the  law  of  averages  would  be  favorable  to 
granting  credit  after  a  single  glance,  provided  investiga- 
tions were  made  later.  But  a  careful,  pleasant,  tactful 
and  clean  cut  explanation  that  credit  means  keeping  a 
certain  amount  of  stock  outside  the  business,  that  only  a 
limited  amount  of  capital  is  available  for  such  use,  and 
that  it  is  therefore  necessary  to  receive  money  on  charge 
accounts  regularly  according  to  definite  rules,  will  help 
the  new  credit  purchaser  to  live  up  to  his  intention  to 
pay  promptly. 

The  second  method  of  the  six  that  reduced  credit 
losses  prescribes  that  the  personalities  of  consumers  be 


LOSSES  AND  BAD  DEBTS 117 

considered.  There  is  danger  in  relying  too  strongly  on 
postage  stamps.  It  is  quite  possible  for  the  merchant 
with  a  small  trade  to  know  every  customer  on  his  books, 
and  the  larger  firms  can  at  least  keep  card  records  detail- 
ing characteristics  and  previous  relations.  Both  prac- 
tices make  it  possible  to  adapt  collection  methods  to  the 
delinquent,  once  it  becomes  necessary  to  use  them.  The 
man  behind  with  his  bills  must  be  brought  to  the  paying 
mood,  encouraged  to  exert  effort  enough  to  hand  over 
money,  and  shown  that  the  merchant  is  willing  to  help 
him  keep  his  promises  to  pay,  even  to  the  extent  of 
arranging  for  instalment  payments. 

SIX  methods  are  here  given  for  reducing  losses  from 
bad  debts.     They  have  been  tried  out  by  two  hundred 
and  eighty-five  merchant*  and  found  valuable. 

Cooperating  with  fellow  merchants  is  the  third  method. 
Local  credit  bureaus,  either  as  independent  organiza- 
tions or  branches  of  associations  of  commerce,  offer  a 
means  of  bringing  together  every  merchant's  experience 
with  the  credit  applicant.  A  capable  secretary  to  handle 
the  reports,  a  simple  code  for  reporting  results,  card 
files  for  the  data,  loose-leaf  books  for  the  ratings,  a 
determination  to  deny  credit  when  the  ratings  are 
adverse,  and  an  earnest  interest  in  sending  informa- 
tion to  the  secretary,  will  make  a  success  of  a  bureau 
of  this  type.  When  the  bureau  is  opened  slow  pays 
may  be  given  a  jogging  up  by  writing  them  that  a  list  of 
delinquents  must  be  sent  to  the  secretary.  Often,  too, 
the  bureau  can  bring  troublesome  accounts  to  time  by 
sending  out  impartial  letters  on  its  letterhead.  Dealers 
in  several  lines  are  now  organized  nationally  to  handle 
collections  and  catch  " skips." 

President    McGlasson    of    the    National    Wholesale 


118 MERCHANDISING  EXPENSES 

Grocers*  Association  says  that  when  he  asks  retailers, 
'  *  When  did  yon  send  a  statement  to  this  party  ? ' '  more 
than  a  few  answer,  "Oh,  three  or  four  months  ago — 
he  don't  pay  any  attention  to  statements."  The  fourth 
method  of  the  successful  six  has  to  do  with  just  such 
a  situation — the  distributor  who  is  inattentive  to  the 
overdue  money  on  his  books  has  little  reason  to  expect 
that  he  will  get  it.  Prompt  collections  promote  the 
habit  of  paying,  and  an  absolutely  definite  program  well 
understood  by  all  concerned,  will  do  a  world  of  good 
in  checking  credit  losses. 

Customers  who  are  allowed  to  think  they  do  mer- 
chants a  favor  by  paying  bills  make  poor  risks.  When 
their  bills  become  heavy  they  as  like  as  not  shift  to 
a  competitor  or  start  buying  from  catalog  houses.  Many 
investigators  feel  that  slack  retail  collection  methods 
often  turn  well  intentioned  consumers  into  the  deadbeat 
class. 

When  a  customer  falls  behind,  an  immediate  in- 
vestigation may  uncover  the  all-important  information 
needed — why  he  did  not  pay.  If  a  courteous  personal 
call  can  not  be  made,  a  short  series — say  four — of  cumu- 
lative letters,  which  make  it  plain  that^they  are  leading 
up  to  more  radical  action  if  indifference  continues, 
should  go  out  promptly  and  the  radical  action  follow 
absolutely  on  schedule,  if  necessary.  The  two  hundred 
and  eighty-six  merchants  find  that  promptness  of  this 
sort  keeps  accounts  out  of  agencies  and  guides  consumers 
toward  frank,  business-like  credit  transactions. 

Fifth  is  the  elimination  of  all  partiality.  Favoritism 
makes  for  trouble  in  credit  affairs  exactly  as  in  all  others. 
The  small  retailer  who  carries  "pets"  on  his  books,  as 
he  calls  them,  will  find  that  the  competitor  who  treats 
everybody  alike  gets  more  trade  at  a  better  net  profit. 


LOSSES  AND  BAD  DEBTS 


119 


Last  of  the  six  methods  is  the  admonition  to  secure 
credit  accounts  on  the  basis  that  they  afford  greater 
convenience  and  not  by  urging  how  easy  it  is  to  get  goods 


$8;:£3  Net  Profits  (One  Tumow)                 PROFITS,  COSTS,  and  DISCOUNTS 

By  Trades 

!&]  Cash  Discounts 

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FIGURE  X:    It  will  be  noticed  thai  the  department  store  figures  are  un- 
usual.    This  is  because  in  large  stores  the  cash  discounts  pay  a  portion  of 
the^costs  and  all  of  the  net  profits.     (See  the  chart  on  page  111) 

through  them.     There  is  no  doubt  but  that  carefully 
handled  credit  facilities  are  worth  advertising.     They 


120 MERCHANDISING  EXPENSES 

supply  the  small  retailer  with  one  of  his  keenest  weapons 
against  mail-order  competition.  Still,  stating  openly 
that  a  credit  account  makes  the  gratification  of  wishes 
a  matter  of  words  is  sure  to  lead  to  defaulted  debts  and 
slow  collections. 

Thus  the  two  hundred  odd  retailers  check  credit  losses 
with  these  six  proved  methods — clean-cut  understandings ; 
personality ;  cooperation ;  promptness ;  impartiality ;  and 
just  selling  arguments.  Now  how  about  the  houses  in 
the  primary  markets  selling  to  these  retailers?  There 
are  experienced  business  men  who  feel  that  the  jobbers 
give  the  retailers  too  much  credit,  thus  allowing  them 
to  go  into  business  with  assets  far  too  weak. 

Nevertheless,  investigation  shows  that  the  makers  and 
the  wholesale  distributors  who  are  holding  their  credit 
losses  below  the  average  for  their  lines  rigidly  enforce 
four  practices.  They  instruct  their  customers  in  the 
value  of  rapid  turnovers ;  keep  in  close  touch  with  pur- 
chasers; explain  the  value  of  accurate  statements  of 
assets  and  liabilities;  and  point  out  the  better  credit 
standing  which  will  result  from  a  concentration  of 
purchases. 

With  the  first  of  these  methods  in ,  mind,  John  G. 
Shedd,  president  of  Marshall  Field  and  Company,  states 
that  his  firm  has  done,  in  his  opinion,  considerable  bene- 
fit to  the  average  credit  standing  in  the  Middle  West  by 
holding  their  accounts  to  thirty  days  when  competition 
offers  sixty.  Mr.  Shedd 's  wholesale  selling  organization 
shows  retailers  the  dollars-and-cents  value  of  turning 
stocks  fast. 

Knowledge  of  the  risk  is  nothing  more  than  a  broader 
treatment  of  the  second  method  used  by  the  two  hundred 
and  eighty-six  retailers.  When  a  retailer  is  acquainted 


LOSSES  AND  BAD  DEBTS 


with  the  credit  managers  for  his  sources,  he  will  secure 
much  helpful  advice  from  them  and  not  wait  for  in- 
quiries about  causes  if  he  has  to  let  bills  run  over. 

Next  is  emphasized  the  importance  of  winning  re- 
tailers over  to  the  reasonableness  of  making  accurate 
reports  on  their  enterprise. 

Concentrating  purchases  brings  advantages  to  all  in- 
volved. The  wholesalers  or  manufacturers  get  larger 
and  steadier  volumes  and  the  retailers  secure  more  atten- 
tion because  their  accounts  are  worth  while. 

So  much  for  standards  that  measure  credit  losses  and 
tried-out  methods  for  reducing  them.  Bad  debts  are  not 
the  only  losses  that  help  to  make  costs  rise.  Hidden 
leaks  abound  in  any  business  —  they  range  from  incorrect 
freight  classifications  down  through  tardy  employees, 
bad  checks,  poor  packing,  fires  and  shrinkage,  to  neg- 
lected discounts.  The  illustrations  accompanying  this 
chapter  show  how  careful  employees  can  reduce  the  com- 
monest repeated  losses  that  amount  to  important  sums 
during  a  year. 

Neglected  discounts  are  probably  as  important  as  any 
of  these  hidden  losses.  Exactly  as  the  retailer  is  willing 
to  invest  some  of  his  capital  in  merchandise  held  by 
customers  who  owe  him  on  charge  accounts,  the  whole- 
saler or  manufacturer  usually  arranges  to  keep  some 
of  his  assets  in  the  stores  of  the  retailers  on  his  books. 
If  a  retailer  will  relieve  him  of  this  practice,  and  agree 
to  carry  these  stocks  himself,  the  supplier  quite  nat- 
urally is  glad  to  pay  for  the  capital  released  —  to  give  a 
discount,  in  other  words. 

Losses  from  fires  amount  to  five  times  the  cost  of  all 
the  failures  in  the  entire  country,  but  fortunately  they 
can  be  covered  at  a  small  cost  by  combining  with  hun- 
dreds of  others  through  a  fire  insurance  company. 


MERCHANDISING  EXPENSES 


Every  careful  business  man,  therefore,  keeps  his  tangible 
assets  safely  covered  —  usually  well  above  the  co-insur- 
ance limit  —  in  one  or  more  sound  companies.  If  they 
are  watchful,  those  who  have  extended  credit  to  a  care- 
less merchant  will  see  that  he  follows  the  same  plan. 

Still  more  economical  from  the  social  standpoint  — 
since  over-the-counter  prices  must  finally  pay  for  losses 
in  the  factories  and  stores  —  are  devices  which  may  now 
be  secured  for  checking  fires  before  they  spread.  These 
inventions  not  only  reduce  the  fire  risk  and,  therefore, 
bring  a  dollars-and-cents  saving  in  insurance  premiums, 
but  —  which  is  still  more  important  —  they  also  protect 
the  regular  flow  of  trade  from  expensive  interruptions. 

All  these  ways  for  reducing  the  varied  hidden  losses 
that  weaken  every  business  to  some  extent,  as  well  as 
the  ten  specific  methods  used  by  successful  retailers, 
wholesalers,  and  manufacturers  in  warding  off  an  ex- 
cessive expense  from  defaulted  accounts,  rest  on  the 
fact  that  waste,  when  eliminated,  becomes  a  saving. 
The  rise  in  costs  of  doing  business  is  narrowing  the 
profit  margin.  Many  firms  find  that  a  volume  hereto- 
fore satisfactory  now  fails  to  net  a  worth-while  profit. 
Their  very  existence  depends,  partially  at  least,  on 
checking  expenses  against  standard  costs  of  doing  busi- 
ness and  using  the  methods  of  those  who  are  making 
their  regular  profits  in  spite  of  rising  costs  to  turn  into 
savings  the  losses  which  are  indicated  by  the  averages. 


VIII 


KEEPING   DOWN   MISCELLANEOUS 
EXPENSE 


EXPENSES  are  abnormal  at  your  branch ;  you  spend 
too  much  for  solder ' ' — this  is  the  gist  of  a  message 
sent  by  the  Standard  Oil  Company  to  its  offices  in  New 
England.  Solder  is  a  small  item,  relatively,  in  the 
Standard  Oil  budget — a  large  budget,  one  of  the  largest 
in  this  country.  But  nevertheless  the  home  office  had 
records  of  solder  costs  that  caught  the  excessive  expense 
in  New  England.  The  local  manager  reported  that  he 
was  unable  to  locate  the  cause.  Then  the  home  office, 
sure  of  its  records,  sent  an  expert  investigator  who 
discovered  that  the  openings  through  which  the  solder 
poured  were  a  fraction  of  an  inch  "larger  than  they 
should  have  been. 

Doubtless  the  Standard  Oil  makes  money  for  a  number 
of  reasons  in  addition  to  the  exceptionally  good  one 
that  it  watches  the  smallest  expense  items  carefully. 
Still  the  fact  that  its  officials  know  accurately  what  the 
solder  bills  should  amount  to,  indicates  a  care  in  man- 
agement to  which  might  probably  be  assigned  a  majority 
of  the  reasons  that  back  its  success.  Profits  have  been 
long  in  this  country;  possibly  on  that  account  we  are 
generous  about  the  small  items  in  the  cost  of  doinqr 
business:  the  supply  bills,  the  light  bills,  the  general 
expense  bills,  and  the  shrinkage  losses. 


124 MERCHANDISING  EXPENSES 

Now  costs  are  rising.  They  cut  into  the  profits.  "We 
find  that  the  profits  cannot  be  increased  to  satisfy  these 
rising  costs.  We  discover  that  the  days  of  long  profits 
are  gone  and  that  they  will  not  return.  This  all  means 
that  we  must  tighten  up  on  the  small  items,  run  our 
enterprises  with  the  careful  economy  practiced  in  the 
older  countries,  and  push  for  larger  volumes  or  faster 
turnovers  that  will  make  the  gains  from  the  narrower 
profits  attractive. 

Years  ago,  before  competition  concentrated,  there  was 
more  than  trade  enough  for  everybody.  The  undevel- 
oped condition  of  our  transportation  facilities  often 
made  it  necessary  to  be  content  with  exceedingly  slow 
stock  turns.  Then  there  was  an  excuse  for  long  profits. 
We  face  new  conditions  today. 

Average  costs  for  the  main  items  in  the  cost  of  doing 
business,  as  shown  by  wide  investigation,  have  already 
been  discussed.  With  these  averages  have  appeared 
those  methods  for  meeting  rising  costs  which  investiga- 
tors found  the  most  successful  merchants  used.  This 
chapter  gives  averages  for  the  remaining  items  in 
the  cost  of  doing  business  and  tells  how  ninety-one  mer- 
chants with  going  concerns  in  fourteen  states  handle 
them.  These  items  are :  (1)  general  expenses ;  (2)  heat, 
light  and  power;  (3)  supplies;  and,  (4)  depreciation 
and  shrinkage. 

General  expenses,  the  first  of  these  items  which,  al- 
though often  but  small  percentages  of  the  sales  vol- 
umes, frequently  turn  the  balance  between  profit  and 
loss,  include  under  the  classification  here  used  the  buy- 
ing expenses,  interest  on  the  investment,  salaries  which 
cannot  be  definitely  allocated,  and  miscellaneous  general 
cost,  such  as  the  returned  goods  expense  or  freight  over- 
charges. The  interest  on  the  investment  is  figured  on 


MISCELLANEOUS  SAVINGS 125 

the  average  amount  of  capital  actively  used  in  the  busi- 
ness. The  cost  of  these  charges,  averaged  from  a  thou- 
sand odd  stores,  is  the  following  percentage  of  the  total 
net  sales  volume  in  the  twelve  lines  investigated : 

Percentage  of  Net 
Line  Sales  Volume 

Department    stores 6.38% 

Drugs     4.49% 

Shoes    4.36% 

Dry    goods 4.15% 

Jewelry    3.95% 

Mail  order  houses 2.42% 

Clothing    2.31% 

Hardware    2.01% 

Furniture    1.10% 

Variety   goods .91% 

Vehicles   and   implements .71% 

Groceries .45% 

Although  the  general  expenses  will  vary  with  the  local 
conditions  encountered  in  each  competitive  field,  these 
averages  offer  standards  against  which  roughly  to  check 
the  expenses  remaining  after  dealing  with  the  main 
items.  Administrative,  unallocated  and  buying  salaries 
vary  with  each  store,  however,  and  are  not  adaptable 
to  definite  or  widely  applicable  methods.  But  inter- 
est on  the  investment  appears  in  the  same  phases 
in  all  the  stores  contributing  to  the  averages.  With- 
out a  single  exception  the  ninety-one  merchants  par- 
ticularly consulted  on  this  problem  by  the  investigators 
charge  interest  at  market  rates  for  every  dollar  of  their 
investments  before  they  count  a  net  profit.  They  figure 
exactly  how  much  they  put  into  the  business,  multiply 
it  by  the  usual  interest  rate,  and  charge  the  business 
with  the  resulting  amount.  Some  of  them  build  up 
reserves  with  this  interest  money,  others  re-invest  it  in 
the  business,  and  not  a  few  put  it  into  their  personal 
bank  accounts.  But  not  one  of  them  makes  the  mistake 


126 MERCHANDISING  EXPENSES 

of  neglecting  to  secure  ordinary  workaday  hire  for  his 
money  in  addition  to  reasonable  profits. 

Freight  overcharges  form  another  item  among  the 
general  expenses  in  the  handling  of  which  the  successful 
merchants  use  methods  that  can  be  standardized.  Sixty- 
four  of  the  ninety-one  merchants  check  over  all  freight 
charges  against  official  classification  sheets  and  apply  to 
the  railroads  for  allowances  when  mistakes  are  dis- 
covered. Since  freight  classifications  are  complicated,  a 
majority  of  those  with  small  stores  turn  their  bills  over 
to  agencies  which  make  a  business  of  detecting  mis- 
takes in  freight  bills.  One  merchant  secured  $273.45 
from  the  railroads  for  errors  in  a  batch  of  old  bills  sent 
to  an  agency  of  this  type  managed  by  a  trade  paper. 
The  railroads  take  the  classifications  most  advantageous 
to  them,  of  course,  but  they  are  always  prepared  to  rec- 
tify errors  backed  by  reasonable  proof. 

HARRIMAN  saved  stray  paper  clips;    Wanamaker 
made  scratch  paper  from  old  envelopes.     These  in- 
stances emphasize  the  little  economies  in  retailing. 

In  charging  the  actual  freight  bills,  with  but  five  ex- 
ceptions, these  merchants  include  them  in  the  cost  of  the 
goods  and  not  in  the  cost  of  doing  business.  They  jquite 
rightly  consider  the  freight  charges  as  part  of  their 
investment  in  goods.  Whenever  possible  they  charge  the 
freight  directly  to  the  goods  concerned  and  never  pro- 
rate or  average  the  freight  when  they  can  avoid  doing 
so.  Their  object  is  to  prorate  according  to  the  resulting 
benefits. 

The  cost  of  rehandling  returned  goods  is  a  general 
expense  encountered  by  most  distributors.  The  jobbers 
and  wholesalers  usually  urge  the  retailers  to  write  for 
instructions  before  returning  goods — possibly  a  satisfac- 


MISCELLANEOUS  SAVINGS 


127 


tory  allowance  or  delivery  to  another  customer  can  be 
arranged.     There  is  no  objection  from  the  retailer  to 


How  To  Maintain  Profits  Against  Rising  Costs 
fcj>^=One  Turnover 


FIGURE  XI:    This  chart  analyzes  the  tendency  that  apparently  dominates 

modern  merchandising.     Distributors  now  strive  to  equal  with  a  number  of 

small  profits  the  single  generous  gain  that  could  be  taken  years  ago 

doing  this  so  long  as  the  jobber  has  not  made  needless 
substitutions  without  instructions  or  taken  a  chance  on 
shipping  undesired  goods  because  his  salesmen  were 
oversampled. 

With  retailers,  returned  goods  are  more  of  a  prob- 
lem. The  department  stores  are  particularly  troubled. 
One  large  store  in  the  East  reports  that  on  the  average 
29.5  per  cent  of  its  C.  O.  D.  purchases  are  returned 
and  28.5  per  cent  of  the  orders  from  customers  with 


128 


MERCHANDISING  EXPENSES 


FFFFFFr 


rrrrrr 


rrr  rrrrrr 

E  r_r_  rrrrrrri 


rrrrrrrrrrrr 
rrrrrn  rrrrr 


FURNITURE 

26.51% 
1.10% 
.92% 
2.14% 
•41% 


DRY  GOODS LINES 

23.05%  .Total  Cost  to  Do  Business 
4.15%  ..  .General  Expenses 
. .  Heat,  Light,  Power 
. .  Shrinkage,  Depreciation 


.54< 
1.11< 


FIGURE  IX:  These  percentages  are  averaged  from  figures  secured  by 
studying  the  books  and  records  of  more  than  a  thousand  stores.  The  con- 
cerns selected  typify  conditions  prevailing  in  the  various  lines,  being  both  big 

charge  accounts.  Since  the  privilege  of  returning  goods 
without  question  is  now  widely  extended  to  consumers, 
about  all  that  can  be  done  by  the  merchant  who  desires 
to  meet  his  competition  is  to  prevent  the  return  of 
valuable  goods  after  they  have  been  used  and  to  decline 
to  receive  returned  goods  when  he  is  satisfied  the  cus- 
tomer is  repeatedly  taking  advantage  of  him.  The  re- 
turns resulting  from  careless  addres'ses  and  deliveries 
may  be  properly  charged  to  delivery  costs  and  their 
number  reduced  by  checking  on  the  delivery  methods. 
The  cost  of  repair  departments  is  usually  charged 
among  the  general  expenses.  Only  twenty-eight  of  the 
merchants  whose  methods  are  analyzed  in  this  chapter 
have  repair  departments.  Twenty  of  the  twenty-eight 
report  that  their  repair  departments  just  about  take  care 
of  themselves  and  that  they  do  not  expect  much  more 
of  them.  The  other  eight  take  an  opposite  view  and 
declare  that  they  make  money  on  repairs.  Several  go 


MISCELLANEOUS  SAVINGS 


129 


LINES HARDWARE 

Total  Cost  to  Do  Business  20.41  % 

General  Expenses 2.01% 

Heat,  Light,  Power 43% 

Shrinkage,  Depreciation    .52 
Supplies 


GROCERIES 

17.91% 
.45% 
.39% 
.76% 
.37% 


CLOTHING  - 

23.27% 
2.31% 

.62% 
2.16% 

.43% 


SHOES 
23.22% 

4.36% 
1.10% 


and  little,  and  located  in  cities  large  and  small.  The  percentages  give  the 
retailer  approximate  standards  against  which  to  check  corresponding  items 
in  order  to  find  out  in  a  general  way  whether  or  not  his  costs  are  unduly  large 

further  and  state  that  they  find  the  repair  departments 
active  trade-building  forces.  These  facts  apparently  in- 
dicate that  in  some  lines,  like  jewelry,  shoes,  and  hard- 
ware, there  is  an  opportunity  in  vigorously  pushing  and 
advertising  the  repair  department.  One  jeweler,  who  is 
particularly  confident  this  is  true,  sends  out  the  follow- 
ing letter  in  the  interests  of  his  repair  department: 
"On  (insert  date)  we  repaired  your  watch.  We  do  not 
remember  having  repaired  it  since.  A  watch  is  a  most 
delicate  piece  of  mechanism  and  in  the  performance  of 
its  severe  duties  deserves  good  care — cleaning,  adjust- 
ing, oiling,  and  so  on.  It  may  seem  impossible,  but  it 
is  nevertheless  a  fact,  that  the  balance  wheel  of  a 
watch  travels  over  three  thousand  five  hundred  and  fifty 
miles  a  year  and  makes  over  a  hundred  and  fifty  million 
beats  during  that  time. 

"The  entire  works  are  not  a  moment  without  friction 
and  this  little  watch  has  to  bear — proportionate  with 


130 MERCHANDISING  EXPENSES 

its  weight — more  than  any  wagon  can  possibly  stand.  Is 
it  any  wonder  that  a  watch  needs  cleaning  every  twelve 
or  eighteen  months? 

"You  know  us,  you  know  our  methods.  You  know 
that  work  done  at  this  store  is  well  done.  To  the  best 
of  our  knowledge  your  watch  gave  satisfaction.  We 
want  it  to  do  so,  and  in  case  that  a  watch  is  not  satis- 
factory, we  will  thank  you  to  return  it  so  that  we  can 
make  it  perfectly  satisfactory.  Wouldn't  it  be  a  good 
plan  to  bring  your  watch  in  ? ' ' 

Heat,  light,  and  power  is  the  second  of  the  four 
expense  items  listed.  It  is  worth  noticing  that  in  but 
a  few  instances  was  this  item  found  to  be  in  excess 
of  one  per  cent  of  the  net  sales.  Below  this  one  per 
cent,  because  the  different  stocks  require  varying 
amounts  of  light,  a  wide  range  of  percentages  appeared. 
Averaged  for  the  various  lines,  these  percentages  give 
the  following  norms  against  which  similar  expenses  may 
be  advantageously  checked  in  a  general  way : 


Line 
Shoes    

Percentage  of  Net 
Sales  Volume 
1.10% 

Furniture    

92% 

Variety    goods  

.81% 

Drugs    

.69% 

Clothing    

.62% 

Jewelry          ...                        .  /• 

.61% 

Dry    goods  

.54% 

Vehicles   and    implements 

51% 

Hardware 

43% 

Groceries     

.39% 

Department    stores 

22% 

Mail  order  houses.  . 

.11% 

Although  the  lighting  bills  take  but  a  small  portion 
of  the  total  operating  costs  they  offer  attractive  oppor- 
tunities to  secure  economies.  The  power  and  heating 


MISCELLANEOUS  SAVINGS 


131 


costs,  on  the  other  hand,  are  more  nearly  standardized, 
and  there  is  a  smaller  leeway  for  economies  after  using 
careful  management  and  standard  equipment.  The 
advance  in  lighting  efficiency  is  constant — what  was  eco- 


H 

Equips  to  Manufacture  to  Stock                        J 

Manufacturers    r- 

\ 

Establishes  an  "In  Stock"  Department                  j 

SmaHer  and  More  ^ 

Frequent  Orders  "~ 

H 

Gives  Wholesaler  Selling  Points 

| 

Equips  to  Sell  in  Broken  Lots 

-j               Trains  Staff  to  Handle  Many  Small  Orders 

Wholesalers       — 

£ 

Seeks  Manufacturers  with.  "In  Stock"  Departments 

Smaller  and  More  ^ 

Frequent  Orders 

-j              Gives  Retailer  Manufacturers'  Selling  Points 

H~ 

Instructs  Salesmen  to  Help  Dealers  Buy  Right 

| 

Fixes  Minimum  Limits  for  Stocks 

-j                        Holds  Stocks  to  Minimum  Limits 

Retailers 

£ 

Locates  and  Pushes  Fast  Selling  Lines 

-1                         Weeds  Out  Slow  Selling  Lines 

c 

Concentrates  Buying  with  a  Few  Wholesalers 

FIGURE  XIII:     Miscellaneous  expenses  possibly  hold  more  dangers 

today  than  ever  before  because  there  are  more  orders.     Frequent  orders,  as 

here  illustrated,  result  from  the  universal  desire  to  turn  stocks  faster 

nomical  yesterday  may  be  extravagant  tomorrow  because 
of  new  discoveries.  Electric  lights  are  only  about  thirty- 
four  years  old  and  the  lights  now  distributed  test  to 
results  fifty  thousand  times  better  than  those  obtained 
from  the  first  produced.  And  still  the  lights  we  have 
today  are  not  over  twenty-five  per  cent  efficient. 


132 MERCHANDISING  EXPENSES 

Carbon  lamps,  formerly  widely  used,  were  generally 
purchased  according  to  their  candle  power.  That  is  not 
an  exact  method,  since  the  lamps  cannot  be  expected  to 
give  their  rated  candle  power  after  they  have  been 
used  for  a  time.  As  they  age,  they  use  more  electricity 
per  candle  power  and  gradually  give  less  and  less  light. 

It  is  more  accurate  to  purchase  electric  lamps  accord- 
ing to  the  amount  of  electricity  they  actually  consume. 
This  consumption  is  given  in  watts,  which  are  the 
units  used  in  measuring  electricity,  just  as  gallons  are 
the  units  for  gauging  water.  Since  a  watt  is  a  small 
quantity  of  electricity,  the  kilowatt,  or  1,000  watts,  is 
more  widely  used  in  actual  practice. 

The  newer  so-called  ''tungsten  lamps'*  are  generally 
rated  according  to  the  amount  of  electricity  they  con- 
sume in  watts.  One  of  the  improvements  these  lamps 
are  intended  to  embody  is,  moreover,  a  rate  of  consump- 
tion which  varies  only  slightly  during  the  life  of  the 
lamps.  They  consume  about  1.2  watts  per  candle  power, 
and  carbon  lamps,  3.1  watts  per  candle  power. 

The  following  table  shows  the  normal  relation  between 
watts  and  candle  power  for  standard^  tungsten  lamps 
and  the  number  of  watts  that  would  be  used  in  carbon 
lamps  to  produce  the  same  amount  of  light : 


Type 
Regular 

Approximate 
candle  power 

11  5 

Size  of  tungsten 
lamp,  watts 

15 

Watts  a  carbon 
lamp    would    use 
to  give  same 
amount  of  light 

35.65 

Regular 

16  0 

20 

49  60 

Regular  
Regular 

21.4 
34  2 

25 
40 

66.34 
106.02 

Regular  

53.6 

60 

166.16 

Regular  

92.6 

100 

287.06 

Round  bulb 

11  5 

15 

35.65 

Round  bulb  
Round  bulb  

21.4 
34.2 

25 
40 

66.34 
106.02 

Round  bulb 

53  6 

60 

166.16 

Tubular.  .. 

21.4 

25 

66.34 

MISCELLANEOUS  SAVINGS 133 

Therefore  the  merchant  who  watches  for  the  develop- 
ment of  more  efficient  lighting  facilities  frequently  se- 
cures attractive  savings.  The  tungsten  filament  electric 
lamps  with  which  carbon  equipment  may  now  be  re- 
placed offer  a  worthwhile  saving,  and  as  soon  as  the 
nitrogen  gas  filled  lamps  now  available  for  large  in- 
stallations are  widely  distributed  in  the  small  sizes,  still 
further  reductions  in  lighting  bills  will  result.  Nitro- 
gen filled  tungsten  electric  lights  have  already  been 
tested  by  several  stores  for  outside  illumination  and 
lighting  large  areas  at  savings  which  approach  eighty 
per  cent  of  the  former  costs. 

In  addition  to  the  savings  possible  through  using  the 
most  economical  equipment,  it  is  often  practicable  to 
economize  by  rearranging  installations  and  bettering  re- 
lated factors.  Sears,  Roebuck  and  Company,  for  ex- 
ample, thought  the  lighting  item  in  their  cost  of  doing 
business  important  enough  to  warrant  a  careful  study 
of  the  reflecting  qualities  of  the  walls  and  ceilings  in 
their  Chicago  headquarters.  They  found  that  the  effi- 
ciency of  the  lights  in  one  room  increased  fifty  per  cent 
after  the  walls  and  the  ceiling  were  repainted  from  a 
dark  color  to  a  cream  tint.  It  is  also  frequently  possible 
to  reduce  lighting  bills  by  eliminating  a  few  lamps. 

Seventy-eight  out  of  ninety-one  merchants  reported 
that  they  do  not  clean  their  electric  or  gas  lighting 
equipment  every  two  months.  Sears,  Roebuck  and  Com- 
pany have,  on  the  other  hand,  made  investigations  which 
establish  that  a  two  months'  accumulation  of  dust  de- 
creases the  efficiency  of  their  lights  between  22.5  per 
cent  and  23.2  per  cent.  They  clean  their  lamps  six 
times  a  year  without  fail,  at  an  average  cost  of  two  cents 
for  each  fixture,  whether  direct  or  indirect.  It  is  their 
belief  that  it  is  worth  twelve  cents  a  lamp  a  year  to 


134 MERCHANDISING  EXPENSES 

avoid  losing  more  than  twenty-four  per  cent  of  the 
equipment 's  efficiency. 

As  this  small  detailed  practice  of  the  world's  largest 
mail  order  house  indicates,  to  secure  the  highest  pos- 
sible efficiency  from  lighting  equipment  is  only  second 
in  importance  to  managing  it  in  the  most  economical 
manner.  Years  ago  the  question  was  merely  how  to  get 
light,  now  it  is  how  to  get  the  light  that  gives  the  cus- 
tomer— and  the  employee — the  most  satisfaction  and  the 
least  fatigue.  Where  before  there  was  but  one  method 
of  lighting,  the  merchant  may  now  select  from  among  a 
variety :  the  orange  of  gas  and  oil,  the  yellow  of  incan- 
descent gas  and  electric  lights;  the  blue  white  of  car- 
bons; the  deep  yellow  of  the  flaming  arc;  and  others. 
Direct,  indirect,  and  semi-direct  systems  are  available 
and  have  their  individual  characteristics. 

Although  daylight  cannot  yet  be  closely  simulated  in 
equipment  suitable  for  extended  installations,  screen 
filters  and  special  diffusing  globes  make  it  possible  to 
better  the  results  of  yesterday.  All  of  these  various 
technical  problems  related  to  proper  store  illumination 
have  been  carefully  studied  and  proper  modifications 
for  the  store  sizes  accurately  summarized.  Many  public 
utility  companies  gladly  place  knowledge  of  this  type 
at  the  disposal  of  merchants. 

Supplies — third  of  the  four  items  here  considered — 
seldom  exceed  one  per  cent  of  the  net  sales  and  in  the 
majority  of  stores  they  are  below  one-half  of  one  per 
cent.  The  following  averages  for  the  twelve  lines  offer 
standards  that  make  tentative  comparisons  possible — 
they  include  incidentals  like  paper,  twine,  boxes,  water, 
and  all  the  additional  costs  needed  to  keep  the  busi- 
ness going,  but  which  are  neither  covered  in  the  other 
expense  classifications  discussed  elsewhere  in  this  book, 


MISCELLANEOUS  SAVINGS 185 

nor  used  for  purposes  the  nature  of  which  makes  it  pos- 
sible to  allocate  them  under  one  or  another  of  the  main 
items  customarily  found  in  expense  accounts : 

Percentage  of  Total 
Line  Net  Sales 

Jewelry    89% 

Hardware    60% 

Clothing    43% 

Vehicles   and   implements 42% 

Furniture    41% 

Dry    goods 38% 

Groceries 37% 

Drugs 36% 

Mail    order   houses 34% 

Department    stores 32% 

Boots  and  shoes 30% 

Variety    goods 21% 

Less  than  one-half  of  one  per  cent  of  the  net  sales 
in  most  lines — as  shown  above — and  scattered  over  many 
items,  the  supply  bills  offer  a  temptation  to  spend  un- 
necessarily. Even  though  the  amount  of  money  involved 
in  each  instance  may  be  small,  the  aggregate  is  worth 
attention.  No  general  methods  for  saving  on  supplies, 
other  than  watchfulness  and  wide-awake  adaptability, 
were  found  in  use. 

With  very  few  exceptions  this  watchfulness  resulted 
in  individual  plans  and  short  cuts  that  save  a  little  each 
day.  One  merchant's  bookkeeper  makes  ink  from  dis- 
carded typewriter  ribbons;  an  office  manager  saved 
$615.00  a  year  by  purchasing  a  seventeen-dollar  filter 
that  made  it  possible  to  replace  special  bottled  water 
with  city  water  in  his  offices ;  a  treasurer  economized  by 
re-directing  letters  intended  for  branch  offices,  instead 
of  remailing  them;  a  secretary  devised  large  envelopes, 
perforated  with  large  holes  that  assured  the  removal 
of  all  the  contents,  for  speeding  up  the  circulation  of 
interhouse  papers;  and  the  president  of  a  large  mail 


136 MERCHANDISING  EXPENSES 

order  house  made  an  economy  worth  seventy-five 
thousand  dollars  annually  by  using  a  shade  smaller  type 
in  his  huge  catalog.  So  in  all  lines — the  reward  of 
watching  the  small  expenses  carefully,  with  an  eye  for 
better  ways,  -is  larger  profits. 

DEPRECIATION  is  figured  by  most  merchants,  but 
some  make  the  mistake  of  disregarding  it.     These 
methods  will  suggest  ideas  to  both  groups. 

Last  among  the  four  .items  discussed  are  losses  from 
depreciation  and  shrinkage.  These  include  deprecia- 
tion on  all  equipment,  irregular  losses  from  stock,  and 
stock  depreciation  not  regularly  covered  by  routine 
mark-downs.  Averaged  for  lines  and  through  the  figures 
secured  by  the  investigation,  they  give  the  following 
standards  helpful  in  approximating  the  reasonableness 
of  individual  losses : 

Percentage  of  Total 
Line  Net  Sales 

Clothing    2.16% 

Furniture    2.14% 

Department    stores 1.61% 

Dry    goods 1.11% 

Jewelry    95% 

Groceries    76% 

Vehicles   and   implements *  .62% 

Hardware    52% 

Shoes    50% 

Drugs    47% 

Mail  order  houses 12% 

Variety   goods 06% 

No  agreement  appeared  among  the  ninety-one  mer- 
chants on  methods  for  figuring  depreciation.  They  all 
check  direct  shrinkage  by  watchfulness  at  the  counters 
and  in  the  receiving  rooms,  and  by  handling  stock  sub- 
ject to  rapid  depreciation  with  unusual  care  supple- 
mented with  the  advice  of  manufacturers.  They  also 


MISCELLANEOUS    SAVINGS 137 

uniformly  charge  repairs  caused  by  general  wear  or  tear 
to  ordinary  operating  accounts  and  keep  the  reserves 
resulting  from  depreciation  free  for  use  in  making  re- 
placements. Some  of  them  use  the  reserves  in  taking 
discounts.  "Without  an  exception  they  keep  mark-down 
records  as  regular  accounts  so  that  from  them  they  can 
predict  the  amount  of  the  mark-downs  normally  taken 
during  any  season  and  cover  it  in  their  mark-ups.  They 
hold  that  goods  are  only  worth  what  they  will  bring  and 
inventory  at  actual  selling  values,  not  original  mark-ups. 

But  they  do  not  figure  the  actual  depreciation  written 
off  in  any  uniform  way,  although  they  agree  three  factors 
are  involved:  general  decay;  the  probability  of  more 
efficient  types  developing,  or  obsolescence;  and  the  pos- 
sibility of  the  type  becoming  inadequate  on  account  of 
the  business  expanding.  Under  these  conditions  they 
predict  the  period  of  probable  usefulness,  taking  into 
consideration  quality,  task  and  management. 

The  next  step  is  to  spread  the  depreciation  over  this 
period  of  usefulness — and  in  doing  this  their  methods 
vary.  Some  simply  divide  the  original  capital  outlay 
by  the  numiber  of  years  in  the  estimated  period  of  use- 
fulness and  write  off  the  result  each  year.  Others  take 
an  unusually  heavy  depreciation  the  first  year  and  then 
figure  the  remaining  depreciation  by  the  first  group's 
method. 

A  third  group  uses  what  is  probably'  the  most  prac- 
tical and  accurate  plan.  They  first  subtract  from  the 
original  capital  investment  what  they  figure  will  be  the 
scrap  or  second-hand  value  after  the  period  of  useful- 
ness has  elapsed  and  divide  this  remainder  by  the  number 
of  years  of  expected  life.  The  result  is  written  off 
each  year  until  the  original  cost  less  the  estimated  resid- 
ual value  is  covered.  Many  merely  take  an  arbitrary 


138 MERCHANDISING  EXPENSES 

figure.     But,  though,  their  methods  differ,  not  one  neg- 
lects to  build  up  depreciation  reserves. 

These  four  items  (general  expenses;  heat,  lighting  and 
power;  supplies;  and  depreciation  and  shrinkage)  are 
the  small  expenses — the  costs  too  often  passed  over  with 
scant  or  hasty  consideration.  Yet  actual  instances 
demonstrate  that  the  Standard  Oil  Company  and  Sears, 
Roebuck  and  Company — concerns  together  handling  tens 
of  millions  of  dollars  each  week — find  the  little  expenses 
worth  attention.  This;is  a  straw  that  indicates  the  trend 
of  business  development — it  is  becoming  necessary  to 
watch  more  carefully  the  dollars  and  cents  at  work  in 
distribution.  And  as  a  matter  of  fact  it  is  frequently 
possible  to  make  dollars  by  saving  them. 


PART  IV 

MAKING  MONEY  IN  SPITE  OF 
HIGHER  COSTS 


IX 

POLICIES  IN  RETAIL  COST 
KEEPING 


A  LTMAN — although  he  is  dead,  his  big  retail  busi- 
JL\  ness  keeps  his  name  alive — worked  out  systems 
which  tell  at  a  glance  the  yardage  left  in  the  bolts  on 
shelves  floors  below.  Altman  incessantly  used  figures, 
facts,  records  and  statistics.  Wanamaker  has  figures, 
too,  but  he  centers  on  merchandising — sales  plans,  ad- 
vertising, stocks  and  buying. 

And  so  it  is  among  merchants.  There  is  but  one  end — 
profits — and  many  different  means.  Some — the  an- 
alyzers— use  records  as  means;  others — the  salesmen-1- 
make  selling  the  means  and  rely  on  records  for  no  more 
than  a  varying  amount  of  guidance.  Between  these 
extremes  is  the  average  American  merchant. 

For  him  it  is  obviously  impossible  to  lay  down  a  cut 
and  dried  system.  That  would  be  attempting  to  fit  his 
business  to  a  cost  system,  while  he  may  either  rely  on 
costs  extensively,  consult  them  only  for  rough  and 
ready  guidance,  or  make  good  on  a  sheer  knack  for  sell- 
ing. The  cost  system  must  be  shaped  to  the  merchant, 
not  the  merchant  to  the  cost  system.  And,  to  say  the 
same  thing  another  way,  the  type  of  cost  system  a  mer- 
chant will  pick  depends  on  his  business  characteristics. 

Of  course  there  are  certain  accounting  principles  which 
should  be  present  in  every  cost  system  if  it  is  to  prove 


142 HOW  MERCHANTS  GET  AHEAD 

worth  while,  just  as  there  are  certain  principles  which  a 
man  must  uphold  if  he  is  to  succeed  in  the  long  run 
under  average  conditions.  I?irst  of  all,  a  cost  system 
is  not  worth  much  if  it  does  not  work  through  the  entire 
set  of  books  in  connection  with  which  it  is  used.  If  it 
stops  half  way  or  fails  to  take  into  consideration  items 
such  as  depreciation  and  leakage,  there  is  considerable 
danger  of  its  doing  more  harm  than  good. 

Secondly,  a  cost  system  will  work  itself  to  death,  eat 
off  its  own  head,  if  it  is  not  simple.  Probably  the  worth 
of  a  cost  system  is  measured  more  by  the  cheapness  with 
which  it  gets  needed  facts  quite  truthfully  than  by  any 
other  factor.  Simplicity  prescribes  a  certain  amount  of 
give  and  take  in  the  working  of  a  cost  system — figures 
need  not  be  absolutely  exact  when  there  is  no  necessity 
of  absolute  exactness.  A  good  many  merchants  are  said 
to  have  spent — and  there  is  probably  more  than  a  grain 
of  truth  to  it — the  better  years  of  their  lives  scratching 
pen  against  paper  in  order  to  achieve  the  round  about 
and  needless  exactness  required  by  their  cost  systems. 

There  is  of  course  a  point  at  which  the  virtue  of  rough- 
and-readiness  in  cost  system  facts  may  become  an  ex- 
ceedingly disastrous  characteristic.  /This  is  a  question 
for  everyday  logic  to  settle — or,  possibly,  the  advice  of 
a  broad  minded  expert. 

Perhaps  an  instance  will  help  to  explain.  On  the  way 
from  the  elevator  to  the  private  office  of  a  merchant  who 
is  rapidly  making  himself  and  his  three  sons  millionaires 
in  an  important  middle-western  city,  I  passed  the  desk 
of  his  credit  manager.  The  credit  manager  was  taking 
cash  from  a  customer. 

One  of  the  first  subjects  this  merchant  and  I  hap- 
pened to  discuss  was  the  cost  of  delivering  packages  by 
a  combined  fast  heavy  gasoline  truck  and  light  electric 


SOUND  COST  KEEPING 


143 


wagon  service.  He  showed  sheet  after  sheet  of  costs  con- 
cerning the  delivery  of  packages  by  this  system,  arranged 
from  varied  angles.  Although  these  figures  were  in- 


S 

tock 

VJ  .       Wcrv*. 

j»>W 

o 

Month 

Sales 

Inventory 

Turns         Mku. 

Month           Sales        Inventory 

Turns 

Mku. 

3^2i 

lt-oo.il, 

320.17 

S.f      33..  1 

AUr. 

/7SO./7 

4OO.04- 

2-f      31.5 

'fWnJx 

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Stock 

v^LcrvXLA                       (At  CflS 

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Average  Sales  To  .  . 
Ten  Per  Cent  Estima 
Estimated  S 
Inventory  On 
Surplus  for 

VJW    \**                                        a/ 

*«« 

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ted  Increase 

V^-V           '                                        , 

ockOs..--  

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MCfell 

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$  6,  50 

OperiTc 
OpenT 
Approx 

Buy  For  .  .-5.  .  Turns                                                                                              Jp 
Buy  For  Each  Turn 
mate  Stock  Limit  (Open  to  Buy  $?.  3  P.  plus  Average  Stock  On  Hand  ^f  **&)=*#  5"5^ 

330 

FORMS  I  and  II:     These  forms  are  from  the  cost  system  of  a  merchant 

who  depends  on  figures  for  an  unusual  amount  of  assistance.      The  larger 

supplies  turnover  facts.  The  smaller  assembles  a  six 'months'  stock  plan 

teresting,  it  was  evident  that  a  good  many  of  them  satis- 
fied no  earthly  practical  use  under  ordinary  circum- 
stances. 

So  I  said,  ''You  have  a  very  detailed  cost  sjrstem." 
"Yes,"  he  replied,  "it  is  a  wonder.     But  I  guess  it 
takes  about  all  the  time  of  my  younger  son — you  see  he 
is  specializing  on  that  side  of  the  business. " 

The  credit  manager  and  the  cash  were  in  my  mind. 
I  could  not  resist  the  need  of  mentioning  it,  and  said: 
"Your  cost  system  is  certainly  specific,  but  I  find  my 
opinion  of  all  these  delivery  figures,  no  matter  how  de- 
tailed they  are,  considerably  lowered  by  the  fact  that 


144 HOW  MERCHANTS  GET  AHEAD 

your  statistics  of  bad  accounts  depend  on  the  honesty 
of  a  man  who  does  not  deserve  to  be  put  under  tempta- 
tion. Half  your  doubtful  accounts,  although  perfectly 
good,  could  be  turned  into  dead  losses  through  no  cause 
of  your  customers.  Your  system  would  report  these 
facts  in  minute  detail — except  the  single  fact  that  the 
customers  were  not  to  blame.  I  noticed  your  credit 
manager  taking  cash.  Of  course,  he  is  also  writing 
off  accounts." 

He  was  all  attention  at  once  and  took  statistics  on 
overdue  accounts  out  of  the  top  drawer  of  his  desk, 
where  they  were  ready  at  hand.  He  had  been  worrying 
about  the  situation  himself,  but  hesitated  to  question 
the  elaborate  cost  system  worked  out  by  his  son.  His 
figures  on  bad  debt  losses  showed  that  the  credit  manager 
controlled  over  twenty  thousand  dollars  in  that  way, 
yet  gave  no  bond  and  received  fifty  dollars  a  week.  It 
happened  that  the  credit  manager,  like  nine  out  of  ten 
men  in  business,  was  absolutely  honest.  "Without  doubt 
the  thought  of  taking  money  from  a  customer  and  then 
writing  off  the  account  had  never  entered  his  mind. 
Yet  here  was  a  definite  policy  need  confused  with  the 
detail  of  a  system  of  accounting. 

COST  systems  are  somewhat  of  a  mystery  to  most  of 
us.     But  these  simple  characteristics  of  all  of  them 
make  it  easy  to  analyze  your  cost  accounting  needs. 

In  addition  to  thoroughness  and  simplicity,  a  third 
basic  need  of  cost  systems  is  comparisons.  Facts  by 
themselves  are  helpful  to  a  greater  or  less  degree — de- 
pending upon  the  amount  of  experience  with  which  the 
merchant  is  able  to  consider  them — but  in  the  end  it  is 
comparisons  that  count.  A  cost  system  may  take  the 
entire  time  of  ten  experts  to  collect  figures  from  every 


SOUND  COST  KEEPING 145 

conceivable  angle  and  from  every  conceivable  source — 
and  still  fall  short  of  its  purposes  if  it  fails  to  supply 
comparisons. 

I  know  of  a  store  that  boasts  a  fifteen-thousand-dollar 
a  year  treasurer,  a  five-thousand-dollar  a  year  assistant 
treasurer,  a  four-thousand-dollar  a  year  head  accountant, 
and  eight  people  who  give  all  their  time  to  operating 
its  cost  system.  One  man  spends  the  eight  hours  of  an 
eight  hour  day  copying  on  a  typewriter  the  figures  un- 
earthed by  this  indefatigable  band.  Another  young  man 
sits  the  day  through  before  a  huge  glass-covered  ex- 
pense classification,  fitting  bills  around  the  skeleton  of 
this  remarkable  cost  system. 

And  yet  this  system  fell  absolutely  flat  when  the  store 
needed  it  most.  It  had  been  industriously  squeezing 
figures  out  of  the  money  spent  and  taken  in  by  that 
company — squeezing  them  out  in  every  ingenious  way 
that  the  cost  accountants  could  conjure  up — but  it  was 
not  getting  the  right  sort  of  simple  fundamental  com- 
parisons. It  did  not  show  the  relation  of  the  stocks  on 
the  shelves  to  the  sales  for  the  current  periods  in  com- 
parison with  earlier  periods. 

The  store  put  up  a  new  building,  designed  to  handle 
many  additional  lines,  stocked  heavily,  and  moved.  The 
sales  at  the  new  location,  particularly  in  the  added  lines 
with  which  the  managers  had  but  little  experience,  soon 
behaved  disastrously.  They  held  up  beyond  expecta- 
tions, but  the  bills  began  to  swamp  them.  For  each 
incoming  dollar,  over  on.e  hundred  and  fifteen  cents  went 
out. 

The  store  was  on  the  way  to  going  broke.  The  owners 
borrowed  money — one  million  four  hundred  thousand 
dollars  of  it,  to  be  exact — but  it  was  like  throwing  good 
American  money  away.  The  cost  system  corps  worked 

10 


146 


HOW  MERCHANTS  GET  AHEAD 


faithfully  and  hard  during  this  extremity — far  into  the 
night,  piling  up  figures  upon  figures.  But  the  figures 
still  neglected  the  needed  comparisons.  Finally  an  as- 
sistant to  one  of  the  higher  officials  started  out  of  his 


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JUM 

fr.n.—  . 

10.00 

(0.00 

86.67 

86.67 

80.00 

13.33 

(0.00 

Kl.OO 

SO.OO 

16.67 

Mr.  TUtaB 

15.00 

7.  SO 

65.00 

7.50 

>0.00 

5.00 

.  Porter 

12.00 

H.OO 

52.00 

J6.00 

.  *»n*jr 

6.00 

W.OO 

34.67 

39.33 

45.00 

1.67 

5,00 

15.00 

to.oo 

3.33 

.  Dmi* 

S.OO 

4.17 

.  MoC*ll 

12.00 

.  fcy.r 

10.00 

.  CclM 

10.00 

moa 

.  Brora 

e.oo 
e.oo 

1 

913-1! 

14 

.  toad 

MRttfto. 

10.00 

e.oo 

II 

r.  Too 

MM 

20.00 

90.0C 

66.67 

86.66 

90.00 

63.73 

90.0C 

90.0C 

80.0( 

86.6F 

e«.s7 

86.6* 

66.67 

1043.33 

HM.Cook 

e.oo 

y 

r.  HI 

k»n 

15.00 

6T.5C 

65.  Of 

65.00 

67.50 

62.50 

67.  5C 

67.5C 

frO.OC 

65.  OC 

65.00 

65.00 

65.00 

T82.V> 

i 

r.  Por 

Ur 

12.00 

54.0C 

52.00 

52.00 

54.00 

50.00 

54.0C 

54.0C 

4U.OC 

52.0C 

52.00 

52.00 

52.00 

626.00 

i 

r.  Hur 

P<<T 

8.00 

3«.OC 

M.f7 

34.67 

36.00 

33.33 

3«.OC 

3«.OC 

32.  DC 

34.  6f 

34.67 

34.66 

J4.67 

417.33 

Total  t>7  BM. 

c 

c«  Mac 

11.00 

33.00 

11.00 

44.00 

r 

our  II* 

1 

11.00 

77.00 

11.00 

68.00 

u 

r.  Cu 

•r 

15.00 

30.00 

30.00 

•r.  CnhK 

T 

,tal  b 

r  •»•• 

UT5C 

23634 

37833 

26950 

22116 

2475C 

2475C 

8200C 

23632 

23834 

23832 

23834 

3031.15 

Total  *,«.. 

| 

r.  Cr. 

hju 

141G6 

14167 

14166 

14167 

14166 

14167 

141*6! 

14167 

14167 

14167 

14167 

14167 

1TOO.OC 

1 

r.  VfC 

ord 

15.0C 

24.00 

25.00 

25.00 

25.00 

25.00 

25.  OC 

25.  OC 

25.  OC 

25.00 

i5.CC 

25.00 

300.  OC 

»tal  b 

186M 

16647 

16*6* 

16667 

16666 

166*7 

1666' 

1666" 

16661 

16MT 

166*7 

1646V 

2000  .OC 

FORMS  III  and  IV:     These  tables  and  those  on  page  147  belong  to  the 

cost  system  of  a  store  that  uses  the  budget  system.      The  fundamental  idea 

of  such  a  system  is  the  setting  up  of  estimates  for  the  year  ahead 

own  initiative  to  locate  the  trouble.  He  did  not  know 
a  great  deal  about  accounting,  but  he  did  have  a  bit  of 
a  knack  for  analyzing. 

He  mulled  over  the  cost  system 's  great  mass  of  figures, 
looking    for    loopholes.      Matching    these    figures    one 


SOUND  COST  KEEPING 


147 


against  another,  he  made  the  startling  discovery  that 
in  the  new  departments,  added  on  moving  to  the  larger 
building,  stocks  were  seventy-five  per  cent  larger,  for 
corresponding  sales  volumes,  than  in  the  sections  handled 


IT65.83 

1900.00 


670. 00 

w.oo 


uea.o* 

1MO.OO 


FORMS  V  and  VI:    As  explained  on  page  146  and  further  illustrated 

by  these  tables,  the  appropriations  in  a  budget  system  afford  the  managers 

a  constant  check  on  expenses  and  give  the  departments  tangible,  reasonable 

records  against  which  to  compare  efforts 

by  buyers  trained  under  the  store's  excellent  merchan- 
dising system.  The  new  buyers  were  at  once  called 
together,  instructed  to  reduce  their  stocks,  and  the 
store  put  on  an  exceedingly  profitable  basis  within  a 
very  short  time. 


148 


HOW  MERCHANTS  GET  AHEAD 


DAILY  SALES  AND  GROSS  PROFIT  STATEMENT  BY  CLERKS 


NAME  OF  CLERK . 


GOODS 
SOLD 


%&P. 

OH 
SALES 


LAST 
TICKET 
USED 


tdded   to 
Stock 


turned  by 

tatomr,  Oe 

duet  from  Sales 


4 
Cost  of  Goods 


duct  from  Cost 
of  Goods  Sold 


Monthj 


C    Wednesday 


Friday 


F    Saturday 


R     Saturda7 


¥     Thursday 


X    Saturday 


Total  for  weefc 


EE     Monday 


FF    Total  for  month 


SAME  MCNTH 
LAST  YEAR 


GG    Total  for  year  to  date 


HH  Tot.  lastyV  to  this  date 


FORMS  VII  and  VIII:  These  two  forms  (spread  across  both  pages)  are 
from  accounting  systems  of  progressive  manufacturers — the  upper  from  R. 
H.  Ingersoll  and  Brother's  jewelry  system,  the  lower  from  Hart,  Schaffner 


SOUND  COST  KEEPING 


149 


v 

191. 

I 

NAME  OF  CLERK 

CROSS     %« 
SALES      w° 

I"'    ** 

a    «"» 

LAST 
TICKET 
USED 

CASH 
SALES 

CREDIT 
SALES 

TOTAL 
SALES 

COST  OF 
GOODS 
SOLO 

GROSS 
PROFIT 

%tr>. 
OH 
SALES 

191 

J       6 

Mian 

\Less6oods 

Ls- 

7 

Cost  of  Goods 
SoU,  Less  Cost 
of  Goods 

Returned 

8 
Gross  Profit 

1 

%« 
Sales 

10 
Weather 

11 
ETMt 

t 

r 

i 

i 

f 

Y 

-\—^-  —  >  ^s~  1 

, 

tomma 

Tf 

M*"0"111 

Year  to  Data     Last  Year  to  Date 

m               oo 

/ 

LL 

Amcunt 

g 

An-ount    g«    AmoUnt     g" 

i 

Qross  Profits  on  Sates 

| 

Deduct      Expemw 

Rent 

Advertistni 

Advance  Orders  for  Season 

r 

Salaries,    ffiSSS" 

Freight  znd  Express 

1 

TMsSeason   & 

IT.  Sea< 
Last  Ye 

on 

r 

Total  Expenses 

Bought  Entire  Season 

Net  Proftt  on  Sates 

^Delivered  to  Date 

Add:  Dlsee«rt  Received 

<fe  3farx'«  men's  furnishings  system.      Depreciation  facts,  liabilities,  ad- 
vance orders,  and  operating  costs  are  assembled  with  a  record  of  daily 
activities;  and  the  salesmen's  remits  compared  to  secure  fair  standards 


150 HOW  MERCHANTS  GET  AHEAD 

Not  the  least  peculiar  side  of  this  incident  is  that 
when  the  cost  system  experts  were  shown  the  assistant's 
comparisons,  they  depreciated  the  value  of  some  of 
them  which  discarded  or  lumped  into  totals  small 
amounts  properly  belonging  elsewhere.  Still  these  sums 
were  tens  merged  into  hundreds  of  thousands — they 
could  not  in  any  way,  shape  or  manner  affect  the  broad 
truth  brought  out  by  the  comparisons  in  time  to  save 
the  store.  The  trouble  with  the  cost  accountants  was 
that  accuracy  had  become  their  bugbear. 

This  incident  points  to  something  in  addition  to  the 
value  of  comparisons — the  part  imagination  plays  in  cost 
accounting.  This  is  our  fourth  factor.  The  accountants 
were  faithful  and  earnest  and  capable — but  they  lacked 
imagination,  lacked  the  scope  to  look  beyond  the  details 
and  locate  the  big  guiding  facts  which  their  system 
should  pick  out  even  at  the  cost  of  dropping  off  the  cents, 
or,  when  the  sums  grew  larger,  even  anything  below 
forty-nine  dollars. 

It  would  not  be  by  any  means  sound  to  suggest  that 
accuracy  is  not  a  factor  in  cost  accounting.  It  is — 
call  it  the  fifth  and  place  it  on  a  par  with  the  four  we 
have  already  discussed.  But  detail  accuracy,  at  the  cost 
of  neglecting  big  business-saving  facts,, is  tommy  rot. 

A  C  COUNTING  is  a  means  to  an  end — knowledge 
-i*.  of  the  standing  and  needs  of  the  business.  Some- 
thing is  wrong  when  the  means  becomes  the  end. 

As  the  sixth  determining  factor  in  cost  systems,  we 
shall  not  go  far  wrong  in  selecting  the  setting  up  of 
standards.  One  of  the  most  important  objects  a  first 
rate  cost  system  accomplishes  is  finding  goals  towards 
which  the  various  departments  can  strive.  It  is  always 
half  the  game  to  be  fighting  for  a  definite  end,  and  this 


SOUND  COST  KEEPING     151 

is  true  of  business,  as  well  as  of  the  rest  of  life.  But 
the  goals — or  standards — must  be  just,  and  neither  too 
far  away  nor  too  easy  of  attainment,  for  if  they  are 
not  just,  there  will  not  be  sufficient  urge  to  strive  for 
them.  It  is  an  important  share  of  the  cost  system's 
work  to  assure  accurate  and  frequent  standards. 

A  seventh  factor  and  our  analysis  of  cost  system  re- 
quirements is  completed.  This  seventh  factor  is  that  of 
cooperation.  The  worthwhile  cost  system  furnishes 
figures  which,  if  properly  arranged,  can  be  used  to  pull 
the  entire  organization  into  the  each-for-all,  cooperate- 
with-one-another  kind  of  a  body  it  should  be.  Prob- 
ably the  delivery  man  is  given  only  the  record  of  bundles 
handled;  the  collector,  the  fall  in  accounts  outstanding; 
the  cashier,  a  tabulation  of  cash  errors;  and  the  sales- 
men, a  record  of  their  sales.  But  this  is  sufficient  to 
awaken  a  livelier  interest  in  the  company,  to  bring 
"the  firm"  and  "the  boys"  nearer  better  relations. 
And,  of  course,  the  information  given  the  buyers  and 
higher  executives  by  the  cost  system  can  stir  up  coopera- 
tion that  may  prove  little  short  of  invaluable. 

So  much  for  the  seven  factors  that  count  for  most  in 
a  cost  system:  thoroughness;  simplicity;  comparability; 
imagination ;  sane  accuracy ;  standards ;  and  cooperation. 
There  are  three  other  influences  that  practically  amount 
to  determining  factors:  arrangement;  frequency;  and 
sense  of  direction.  The  necessity  of  a  helpful  arrange- 
ment prescribes  that  figures  be  presented  to  the  executive 
with  the  more  important  facts  massed  at  the  top  of  the 
pages  and  the  details  collected  below.  The  frequency 
with  which  the  figures  are  tabulated  for  comparison  is 
important,  but  must  be  varied  to  fit  the  individual  re- 
quirements of  either  the  business  or  the  line.  Sense  of 
direction  is  more  intangible  but  not  less  vital — it  is 


152  HOW  MERCHANTS  GET  AHEAD 


the  result  of  the  owner's  instinct  for  practical  business 
and  prevents  the  cost  routine  from  going  moss  gathering 
in  search  of  useless  facts  or  tangling  itself  in  unneces- 
sary red-tape  until  it  strangles  to  death. 

If  all  these  characteristics  belong  in  a  cost  system, 
how  are  they  to  be  secured?  Assistance  is  now  avail- 
able from  many  sources.  In  practically  every  line  some 
pioneer  has  worked  out  a  system  intended  to  care  for  its 
particular  needs.  A  number  of  the  large  manufacturers 
have  spent  liberally  to  secure  cost-keeping  methods  fitted 
to  the  requirements  of  their  retailers — R.  H.  Ingersoll 
and  Brother,  and  Hart,  Schaffner  and  Marx,  for  ex- 
ample— and  not  a  few  of  the  universities  are  taking  up 
the  same  work,  notably  Harvard,  through  the  Bureau 
of  Business  Research  of  the  Harvard  Graduate  School 
of  Business  Administration. 

The  most  important  precaution  is  a  patient  search 
among  these  sources  to  secure  a  method  directly  planned 
for  your  business.  This  article,  for  instance,  might  have 
given  a  complete  cost  system,  but  it  would  then  have  been 
helpful  to  only  a  few  lines — and  possibly  harmful,  or 
at  least  bothersome,  to  merchants  attempting  to  use  it 
in  other  lines.  Policies  and  detail  sources,  on  the  other 
hand,  are  constructive  for  all.  "»f 

INSTALLING  a  cost  system  is  a  difficult  task,  upon 
which  much  depends.     These  five  steps  show  how  both 
business  men  and  experts  plan  out  successful  cost  systems. 

In  installing  a  cost  system  for  practically  any  line, 
however,  the  first  steps  are  to  list  the  expense  items 
and  group  them  under  broad  classifications.  These 
classifications  will  vary,  but  usually  include:  (1)  addi- 
tions to  the  capital  expenditures — outlays  that  increase 
the  value  of  the  plant;  (2)  payments  connected  with 


SOUND  COST  KEEPING 


153 


merchandise;  (3)  costs  that  can  be  charged  directly 
to  the  departments;  (4)  items  specifically  affecting  the 
stocks  or  the  customers,  but  which  cannot  be  allocated 
to  particular  departments;  and,  (5)  other  indirect  items 
which  go  to  make  up  the  administrative  expense. 


FORMS  IX-XXII:  Every  well-planned  cost  system  endeavors  to  empha- 
size comparisons.  These  forms,  which  illustrate  this  fact,  come  from  a 
system  offered  to  retail  merchants  by  the  Burroughs  Adding  Machine  Com- 
pany. In  practically  every  instance  there  is  a  daily  or  a  monthly  comparison 

After  the  classifications  are  set  up,  the  rather  vague 
administrative  items  are  least  troublesome  when  rigidly 
held  in  check  by  apportioning  costs,  whenever  possible, 
directly  to  departments  according  to  benefits  received. 
The  apportionments  are,  of  course,  worthless  unless  made 
with  scrupulous  care. 


154 HOW  MERCHANTS  GET  AHEAD 

Insurance,  for  example,  should  be  prorated  according 
to  stock  values;  stockroom  charges  according  to  supply 
quotas;  delivery  expenses  according  to  the  number  of 
parcels  delivered;  window  dressing  according  to  the 
window  space  used ;  rental,  heating,  lighting,  ventilation, 
power,  general  repair,  janitor  service,  general  fire  sprink- 
ling and  floor  walking  charges  according  to  the  floor 
space  used  for  selling,  after  allowing  for  location  in  the 
store;  and  so  on  through  all  the  items. 

Some  charges  will  remain  after  these  apportionments 
are  decided  upon — such  as  general  advertising  items, 
shipping  costs,  accounting  expenses  and  bills  for  legal 
services.  These  can  safely  be  either  divided  equally 
among  departments,  or  split  up  according  to  sales,  but 
only  after  they  have  been  stripped  by  an  acid  test  of 
every  charge  open  to  direct  apportionment. 

These  steps  taken,  the  average  cost  system  attempts 
to  show:  (1)  net  sales;  (2)  gross  profit;  (3)  purchase 
costs  to  the  point  of  delivery;  (4)  net  profit;  (5)  the 
operating  expense;  and,  (6)  statistics.  The  nature  of 
the  statistics  will  vary  according  to  the  type  of  business 
involved.  But  in  many  instances  they  include  depart- 
ment sales ;  net  profit  and  loss ;  sales  by  salesmen ;  sales 
by  territories;  sales  by  advertising  mediums;  and  the 
turnovers  secured  by  departments,  lines  or  bulk  stocks. 

To  secure  these  facts  the  cost  system  will  probably  use 
a  trial  balance;  inventories,  handling  purchases,  sales 
and  the  cost  of  sales;  expense  accounts;  a  cost  book; 
an  invoice  register  subject  to  correction  from  the  inven- 
tories ;  a  mark-down  book ;  a  detailed  list  of  all  expense 
classifications;  accounts  for  departmental  expenses;  a 
voucher  register;  sales  slips;  outlay,  cash  drawer  and 
cash  on  account  slips ;  order  records ;  want  slips  for  catch- 
ing calls  for  items  out  of  stock;  summaries  for  outgo 


SOUND  COST  KEEPING 155 

and  income  by  varying  periods;  checks  that  detail  the 
purpose  of  the  payments;  and  " budget"  blanks  that 
enable  the  merchant  to  estimate  his  stocks  and  expenses 
six  months  or  more  ahead  in  the  light  of  past  records. 

These  are  the  tools,  then.  You  may  not  need  all  of 
them,  only  a  selection,  or  additional  ones  especially 
fitted  to  your  work.  This  task  of  assembling  your  par- 
ticular kit  of  cost-keeping  tools  properly  rests  with  the 
assistance  you  secure  either  from  the  sources  enumerated 
a  few  paragraphs  above,  or  from  your  own  adaptability 
guided  by  a  study  of  the  subject,  and  a  careful  analysis 
of  your  business. 

But  from  whatever  source  your  cost  system  finally 
comes,  it  is  worth  remembering  that  simply  listing  ex- 
periences neither  shows  how  tq  control  them,  nor  estab- 
lishes where  you  stand.  And  one  tool  at  work  is  worth 
a  thousand  idle  ones. 


STANDING  UP  FOR  YOUR 
PROFIT 


PROFITS  large  enough  to  cover  the  time,  the  rent, 
and  the  other  charges  I  have  spent  keeping 
those  goods  make  them  too  expensive  for  my  trade. ' '  The 
owner  of  a  small  New  Hampshire  store  was  explaining 
the  shelf-worn  appearance  of  some  stock  to  an  alert 
man  whose  chauffeur  wanted  gasoline.  The  two  men, 
both  nearly  sixty,  had  started  in  business  with  stores  of 
about  the  same  size.  After  forty  years,  one  worries  over 
stickers  in  a  town  of  three'  thousand ;  the  other  controls 
a  string  of  big  New  York  department  stores  and  takes 
long  vacations  during  the  summer. 

" Here's  my  card/'  the  tourist  laughed  as  his  driver 
signaled.  " Maybe  you'll  recognize  my  name.  I  also 
keep  shop — that's  why  I  asked  so  many  questions.  I 
sympathize  with  you.  Perhaps  you  '11  take  a  bit  of  advice 
from  me.  Get  rid  of  that  old  stock  at  any  cost.  I  fire 
out  everything  that  stops  moving.  Hereafter,  take  losses 
as  soon  as  stock  drags. 

* '  Today  success  depends  on  rapid  trading.  Remember 
that  you  must  make  six  sales  in  order  to  carry  stock  and 
secure  a  single  profit.  Shelf  profits  are  not  worth  a  red 
cent  when  it  comes  to  counting  net  gains. 

"I  started  with  a  store  the  size  of  this.  The  biggest 
lesson  I  ever  learned  is  to  consider  January  the  im- 


MAKING  SURE  OF  A  PROFIT 157 

portant  month  and  see  that  it  doesn  't  show  an  inventory 
soggy  with  shelf  profits.  If  these  ideas  help,  you're  wel- 
come to  them,  for  that  remarkable  explanation  of  why 
some  of  your  stock  is  musty  will  hereafter  serve  as  a 
horrible  example  to  my  department  managers. ' ' 

Here  were  two  ideas  of  profit — one  of  a  storekeeper 
who  really  does  not  know  what  the  word  means;  the 
other  of  a  merchant  who  stands  up  for  a  sound  profit. 
The  New  England  retailer  who  adds  running  expenses  to 
the  cost  of  stickers,  until  they  approximate  the  value  of 
their  weight  in  radium,  partly  typifies  many  distribu- 
tors. All  in  this  class  hesitate  about  marking  down  stock 
until  too  late ;  a  few  agree  absolutely  with  him  and  main- 
tain that  consumers  owe  them  a  profit  on  whatever  they 
place  on  their  shelves.  The  New  Yorker's  success  came 
because  he  knew  that  a  distributor  is  only  entitled  to  a 
profit  in  return  for  the  risk  he  shoulders  and  the  talent 
he  puts  into  his  business.  He  undertakes,  by  using  his 
abilities,  to  relieve  consumers  of  the  risk  of  not  finding 
what  they  want  when  they  want  it. 

If  you  have  money  in  the  bank,  it  does  not  require 
unusual  ability  to  fill  a  building  with  goods,  or  a  factory 
with  raw  material,  irrespective  of  demand.  That  is  all 
the  man  who  simply  carries  dead  stock  does ;  consumers 
are  generous  when  they  pay  him  a  fair  wage  plus  bank 
interest  on  his  money.  He  may,  it  is  true,  control  an 
exceptional  location  or  face  weak  competition,  and,  on 
account  of  these  circumstances,  secure  a  profit  even 
without  demonstrating  that  he  has  ability.  But  profit  is 
the  public's  pay  for  risk,  and  sooner  or  later  a  skilful 
rival  will  appear.  Then  what  the  inefficient  man  had 
thought  were  his  profits  shift  to  the  man  who  actually 
shows  capacity  for  his  business. 

What  is  a  sound  profit,  if  it  results,  as  economists 


158 HOW  MERCHANTS  GET  AHEAD 

tell  us,  only  from  talents  ?  In  business  profit  comes  as 
a  return  over  and  above  fair  pay  for  the  routine  work 
involved  in  keeping  a  shop,  office  or  factory  open.  It 
is  not  rent  for  a  building  owned  by  the  business.  It  is 
not  interest  on  the  investment.  It  is  not  money  sufficient 
to  pay  all  the  running  expenses  and  the  usual  mark- 
down  losses.  This  is  what  a  profit  is:  the  amount  con- 
sumers gladly  pay  the  business  man  doing  a  more  or  less 
risky  job  unusually  well. 

The  manufacturer  who  secures  a  profit  in  a  competi- 
tive market  controls  an  organization  so  well  that  his  costs 
leave  him  a  margin  after  meeting  competitors'  selling 
prices.  The  head  of  a  successful  insurance  agency 
makes  money  because  he  handles  his  staff  with  more  than 
average  ability.  A  retailer  finds  a  surplus  in  his  bank 
account  when  he  merchandises  stocks  instead  of  going 
ahead  blindly. 

"1  Tl  7HAT  is  profit?     Many  merchants  have  answered 
V  V    this  question  in  a  way  that  spelled  ruin.     Here 
is  an  explanation  of  exactly  what  true  profit  is. 

The  man  who  shows  no  capacity  either  goes  under  or 
merely  gets  a  wage — there  is  no  profit  if  the  customers 
buy  at  a  price  which  only  takes  care  of  costs  to  do 
business  and  fills  at  market  rates  a  pay  envelope  for  the 
distributor. 

The  successful  business  man  justly  demands,  and  gets, 
something  more  as  compensation  for  the  satisfactory  way 
he  handles  his  risk.  He  is  entitled  to  a  percentage  over 
and  above  all  the  items  of  his  running  expenses,  plus 
salary,  plus  bank  interest. 

Profit  is  not  interest  on  investment ;  it  is  not  a  salary 
paid  for  managing  the  business.  Both  these  are  items 
which  the  proprietor  should  properly  pay  himself  as 


MAKING    SURE    OF    A    PROFIT  159 


RANDLEV   &   SON 

1028  Central  Street 

Telephones:  Evanston  4567 
Wilmette  220 

T\fE  HAVE  spent  liberally  of  time  and  effort,  also  of  money,  to  bring 
'  home  the  fact  that  cooperation  between  consumer  and  distributor, 
based  upon  an  intelligent  understanding  of  each  other's  wants,  would 
prove  mutually  profitable.  We  have  also  endeavored  to  show  that  the 
true  merchant  is  not  only  a  business-doer,  but  also  a  business-builder,  one 
whose  chief  effort  is  to  give  the  people  he  serves  the  best  possible  goods 
and  service  at  the  least  possible  cost,  trusting  to  them  in  turn  to  be  fair- 
minded  and  give  him  such  patronage  as  will  afford  him  a  just  compensa- 
tion for  service  rendered.  Said  one  woman:  "Mr.  Randlev,  you  give  me 
good  service  and  I  am  willing  to  give  you  a  just  pay  for  it,  but  what 
assurance  have  I  that  you  do  not  exact  more  ?  "  What  constitutes  a  just 
compensation  anyway  ?  Let  us  figure  it  out : 

6%  interest  on  $10,000.00  invested  capital 80% 

Salary  to  manager ,__^.  2.00 

Salary  to  store  and  office  help 6.32 

Salary  to  delivery  help 2.80 

Upkeep  of  horses,  wagons,  etc 1.95 

Rene 1.36 

Dep-ecL.tion  of  fixtures 14 

Losses,  bad  debts 50 

Telephone 18 

Ice 24 

Heat 06 

Light 18 

Insurance 07 

Taxes  and  license 14 

Advertising 36 

Benevolence 15 

Paper,  bags,  stationery,  stamps,  etc 1.12 

Miscellaneous  ...  .13 


This  constitutes  the  so-called  overhead  or  fixed  charges. 
Add  to  that  a  net  profit  of 

And  we  have  a  gross  profit  of 


An  intelligent  study  of  these  figures  will  help  to  determine  the  merit 
or  demerit  of  many  statements  and  assertions  now  running  amuck  in  the 
public  prints,  and  proves: 

1st.  Our  gross  profit  on  your  monthly  bill  of  $25.00  is  $5.62.  Our 
net  profit  on  your  monthly  bill  of  $25.00  is  $1.00. 


FIGURE  XIV:  This  is  a  handbill  circulated  by  a  grocery  firm.  They 
find  that  their  explanation  of  the  narrow  margin  between  rising  costs  and 
over-the-counter  quotations  holds  customers  when  competitors  slash  prices 


160 HOW  MERCHANTS  GET  AHEAD 

investor  in  and  manager  of  his  own  business.  Whether 
he  receives  a  profit  above  this  depends,  in  the  long  run, 
on  his  ability  as  a  business  man  to  earn  that  profit  from 
the  people  he  serves.  For  profit  is  the  owner's  return 
for  risk  taken  in  providing  for  the  wants  of  his  cus- 
tomers and  community.  The  essential  phases  of  this 
vital  side  of  merchandising  are,  first,  how  gross  and 
net  profits  average  in  different  lines  and  trades ;  second, 
how  to  mark-up  on  costs  to  secure  a  sound  net  profit; 
and,  third,  how  successful  men  recognize  the  meaning  of 
profit  and  justly  stand  up  for  it. 

How  is  the  business  man  to  fix  the  amount  of  this 
profit  and  his  other  charges?  His  ability,  the  nature 
of  his  goods  or  service,  the  strength  of  the  consumers ' 
demand,  and  the  intensity  of  competition  are  the  deter- 
mining factors.  Let  us  consider  each  in  turn — ability 
comes  first.  Business  men,  like  all  human  beings,  vary 
in  ability.  Otherwise  there  would  be  a  standard  salary 
for  business  men.  But  some  make  millions,  others  thou- 
sands. All  degrees  of  business  talents  exist  above  the 
low  limit  set  by  those  who  get  no  more  than  bank  interest 
and  a  wage  out  of  their  enterprises.  So  ability  -de- 
termines how  much  a  man  will  make  under  the  condi- 
tions set  by  the  three  other  profit  factors.  Just  as 
faces  differ,  so  ability  seldom  duplicates. 

Whether  of  small  or  great  abilities,  however,  every 
man  in  business  encounters  the  three  remaining  profit 
factors,  among  which  the  nature  of  the  goods  or  service 
is  next  in  order.  Stocks  are  only  worth  what  they  will 
bring — costs  to  do  business  may  be  disregarded  except 
as  a  check  to  prevent  losses.  Take  fifty  cents'  worth 
of  straw,  a  dollar  and  a  half  invested  in  labor,  a  two 
dollar  ribbon — add  desired  style — and  a  woman  may 
cheerfully  pay  twenty-five  dollars  for  the  finished  hat. 


MAKING  SURE  OF  A  PROFIT 


161 


A  man's  straw  hat  often  contains  raw  material  costing 
about  a  dollar  and  sells  for  five  dollars.  Therefore,  the 
distributor  is  able  to  measure  his  gains  against  the  na- 
ture of  his  goods,  provided  he  has  avoided  unprofitable 
lines  by  keeping  his  cost  of  doing  business  in  mind  when 
buying. 


40- 

38- 
36- 
34- 
32- 
80- 
28- 

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S20- 
13- 
16- 
11- 
12- 
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6- 
4- 
2- 

COMPARISONS  OF  AVERAGE  PROFITS 

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5t  Prof 

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id  and 

its  on  Capital  Invested  (Manufacturers) 
its,  One  Turnover  (Retailers) 

Doing  Business  (Retailers)  Cash  Discounts 
Mark-  downs  Deducted, 

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FIGURE  XV:     The  averages  here  compared  demonstrate  that  distributors 

must  stand  up  for  fair  profits  in  order  to  secure  gains  equal  to   those  with 

which  the  consumer  rewards  the  manufacturer 

Suppose  that  Carl  J.  Ricker  takes  a  trip  to  Chicago 
from  his  jewelry  store  in  Emporia,  Kansas,  and  finds 
"blue  bird  of  happiness"  pins  popular  there.  He  carries 
a  stock  of  them  back  to  Emporia;  offers  a  section  of 

Kansas  something  attractive  it  might  never  have  been 
11 


162 HOW  MERCHANTS  GET  AHEAD 

able  to  secure  if  lie  had  not  shown  get  up  and  go  enough 
to  visit  Chicago  in  order  to  widen  the  scope  of  his  buy- 
ing ability.  If  his  cost  of  doing  business  happens  to 
be  eighteen  per  cent,  including  a  fair  manager's  salary 
for  himself,  and  ten  per  cent  his  idea  of  a  net  profit, 
is  his  correct  mark-up  on  the  "blue  bird  of  happiness" 
pins  twenty-eight  per  cent?  Not  for  a  moment.  He 
has  a  novelty,  a  bit  of  jewelry  consumers  desire.  They 
will  gladly  pay  him  a  high  profit  in  return  for  his 
progressiveness  and  ability  in  locating  it.  He  may 
justly  take  a  hundred  per  cent  mark-up,  or  even  more. 
"That  reads  very  nicely/'  you  may  question,  "but 
how  about  actual  practice?"  As  a  matter  of  fact  the 
incident  is  true  of  actual  practice.  Kicker  came  to 
Chicago,  found  the  pins,  and  took  them  to  Emporia. 
Though  his  cost  of  doing  business  may  not  be  eighteen 
per  cent,  his  net  profit  ten,  or  his  mark-up  on  these 
pins  one  hundred,  since  he  is  a  wise  merchant,  he  doubt- 
less secured  a  higher  gross  profit  than  usual. 

ONE  item  is  a  staple,  another  a  novelty.     How  shall 
I  mark  them  up?    Here  is  an  answer  of  interest 
to  manufacturers,  jobbers,  wholesalers  and  retailers. 

Today  distributors  who  secure  attractive  profits  disre- 
gard blanket  mark-ups,  and  take  a  gross  profit  on  each 
line  according  to  what  it  will  bring.  They  find  ac- 
curately the  costs  to  sell  a  line,  and  stand  up  for  a 
reasonable  profit,  adding  a  greater  return  whenever 
possible.  They  are  justified,  for  business  men  always 
go  a  long  ways  for  long  profits.  Styles  or  novelties,  the 
carriers  of  high  profit  possibilities,  usually  involve 
extraordinary  risks  and  abnormal  selling  expenses. 

Round  figure  mark-ups  are  relics  of  the  days  when 
jobbers  educated  retailers  to  "buy  at  eighty  cents,  sell 


MAKING  SURE  OF  A  PROFIT 163 

at  one-twenty-five;  buy  at  one-twenty,  sell  at  one-fifty; 
buy  at  one-sixty,  sell  at  two."  Today  progressive  re- 
tailers know  that  the  nature  of  the  goods,  not  the  out- 
of-date  advice  of  jobbers  seeking  to  assure  them  a  pro- 
tecting margin  through  rule-of-thumb  methods,  fixes 
gross  profits.  Where  would  the  retail  grocer  be  if  he 
marked  up  staples  and  fancy  lines  with  the  same  margin  ? 
Or  the  distributor  at  wholesale  who  tried  to  get  as  much 
on  sugar  as  on  roasted  coffee,  teas,  spices  and  dried 
fruits? 

A  Michigan  retailer  died  recently  after  working  thirty- 
eight  years  behind  counters.  He  left  $250.  They  found 
he  had  used  a  general  mark-up — lines  that  cost  $2.00 
a  dozen  he  sold  for  twenty-two  cents  each;  five-dollar 
purchases  brought  him  fifty-five  cents  a  piece;  and 
eleven-dollar  lots,  one  dollar  and  twenty  cents  an  article. 
The  shoe  business  of  the  country  is  in  a  bad  way,  at 
least  as  far  as  retailers  are  concerned,  because  the  dis- 
tributors fail  to  secure  a  suitable  return  for  the  style 
changes  which  now  disturb  their  stocks.  Many  use  fixed 
prices,  pity  the  customer  when  he  does  not  pity  himself, 
and  hesitate  to  stand  up  for  style  prices  on  style  stocks. 
However,  the  National  Boot  and  Shoe  Manufacturers* 
Association  and  the  National  Shoe  Retailers'  Association 
now  advise  the  discontinuance  of  fixed  mark-ups. 

Too  large  a  profit  is,  however,  dangerous.  The  great 
concerns  of  tomorrow  will  undoubtedly  build  on  small 
profits,  rapid  stock  turns,  and  large  volumes  which  pro- 
portionately lessen  expenses.  R.  H.  Macey  and  Com- 
pany grew  for  several  reasons,  but  one  of  the  most  im- 
portant is  their  reputation  for  taking  only  a  twenty  per 
cent  mark-up.  Nevertheless,  round-figure  marks-ups 
usually  bring  ruin  in  this  day  of  closely  figured  costs. 


164 


HOW  MERCHANTS  GET  AHEAD 


TYPICAL  PROFITS  and 


These  figures  supply  only  net  gains  on  sales,  but  the  profits  on  the  invest- 
ments may  easily  be  figured  from  the  data  given.  The  simple  method  of  ar- 
riving at  the  net  profit  here  used  covers  roughly  all  losses  from  mark-downs 
and  unknown  sources.  The  approximate  number  of  stock  turns  secured 


FOR  A  GROCERY  STORE 

A  grocery  in  the  South  submitted  these 
figures  -  they  are  reasonably  typical  of  a 
prosperous  grocery  business.  The  small 
stock  investment  is  the  most  marked  char- 
acteristic of  the  line.  Of  course  the 
average  grocer  is  not  even  approximating 
these  earnings. 
Advertising  and  donations  . . .  .$  1,275.50 

Bad  debts 492.66 

Delivery 3,410.85 

Depreciation  and  shrinkage  . . .        961.10 
General  expenses 942.75 


Heat  and  light 475.20 

Insurance  and  taxes 844.56 

Interest  on  investment  at  6%  .  630.00 

Ttent 2,865.00 

Salaries  (including  owner's)  . . .  7,842.94 

Supplies 385.61 

Stock,  first  of  year,  at  cost $  7,341.60 

Purchases  for  year,  at  cost 73,021.45 

$80,363.05 
End  of  year  stock,  at  cost 6,998.11 

Sales,  at  cost 

Actual  income  from  sales  .  . 

Gross  profit $22,878.81 

Expenses,  as  detailed  above  . . .  20,126.17 

Net  profit $  2,752.64       Net  profit $     321.1 


FOR  A  DRUG  STORE 

This  is  an  actual  store  -  in  New  Eng- 
land. The  owner  thought  he  was  mak- 
ing a  pretty  nice  thing  out  of  it  until  a 
representative  of  a  commercial  agency 
asked  him  tc>  take  out  the  interest  on  his 
investment,  and  a  salary  for  himself, 
before  reporting  his  net  profit. 

Advertising  and  donations $  1,204.81 

Bad  debts 106.15 

Delivery 299.06 

Depreciation  and  shrinkage  . . .        210.62 

General  expenses 587.44 

Heat  and-light 462.25 

Insurance  and  taxes 492.14 

Interest  on  investment  at  6% . .        900.00 

Rent 2,400.00 

Salaries  (including  owner's)  . . .     4,952.70 
Supplies 241.11 

Stock,  first  of  year,  at  cost $  8,120.16 

Purchases  for  year,  at  cost.  .  .  .  29,711.02 

$37,831.18 
.     7,902.10 


End  of  year  stock,  at  cost . 

Sales,  at  cost $29,929.08 

Actual  income  from  sales 42,106.52 

Gross  profit $12,177.44 

Expenses,  as  detailed  above  . . .   11,856.28 


FOR  A  JEWELRY  STORE 


It  is  interesting  to  compare  these  fig- 
ures from  the  books  of  a  middle-western 
jeweler  with  those  epitomizing  conditions 
ra  the  shoe  store  -  table  opposite,  to  the 
right -securing  approximately  the  same 
sales  volume. 

Advertising  and  donations $  2,400.91 

Bad  debts 171.54 

Delivery 289.25 

Depreciation  and  shrinkage  ...        821.22 

General  expenses 405.25 

Heat  and  light 592.61 

Insurance  and  taxes 1,185.16 

Interest  on  investment  at  6%.     2,962.85 
Rent 3,500.00 


Salaries  (including  owner's) 
Supplies 


Stock,  first  of  year,  at  cost. 
Purchases  for  year,  at  cost . 


End  of  year  stock,  at  cost. 


Sales,  at  cost 

Actual  income  from  sales  .  . 

Gross  profit 

Expenses,  as  detailed  above  . 


.     9,872.91 
738.50 

.  38,210.90 
.  54,782.45 

$92,993.35 
.  37,466.21 

.$55,527.14 
.  80,942.56 

.$25,415.42 
.  22,940.20 


Net  profit $  2,475.22 


MAKING  SURE  OF  A  PROFIT 


165 


COSTS  by  TRADES 

becomes  apparent  when  the  averages  of  the  two  inventories  are  divided  into 
the  sales  at  cost.     In  figuring  rates  of  turnover  from  figures  representative' 
of  manufacturing  concerns,  the  average  of  the  amount  of  capital  invested* 
during  a  period  is  usually  divided  into  the  net  sales  for  that  period* 


FOR  A  DEPARTMENT  STORE 


FOR  A  HARDWARE  STORE 


These    figures    are  slightly    disguised. 
They  clearly  illustrate  the  characteristics 
of  department  store  merchandising. 
Advertising  and  donations.  .$    113,209.25 
Bad  debts  5,691.95 
Delivery  81,211.01 
Depreciation  and  shrinkage.        20,319.12 
General  expenses  60,904.88 
Heat  and  light   .                   .        31,843.60 

This  is  an  ideal  store  made  up  from 
figures   presented   before   many  conven- 
tions, the  opinions  of  several  credit  man- 
agers, and  facts  submitted  by  scores  of 
individual   stores.    The   figures   are    in- 
tended to  be  obtainable  averages. 
Advertising  and  donations  $     210.80 
Bad  debts  208.60 
Delivery  156.50 
Depreciation  and  shrinkage  ...        180.00 
General  expenses  1  10.0O 

Insurance  and  taxes  23,191.40 
Interest  on  investm't  (6%)          37,210.84 
Rent  121,670.80 
Salaries  (including  owner's)  .      241  ,625.61 
Supplies  27,204.51 

Heat  and  light   

100.50 

Insurance  and  taxes 

180.50 

Interest  on  investment  at  6% 
Rent  
Salaries  (including  owner's)  .  . 
Supplies 

720.00 
720.00 
.     2,748.00 
56.10 

Stock,  first  of  year,  at  cost  .      309,750.12 
Purchases  for  year,  at  cost  .  2,167,101.40 

Stock,  first  of  year,  at  cost  .  .  . 
Purchases  for  year,  at  cost.  .  . 

End  of  year  stock,  at  cost  .... 

$2,476,851.52 
End  of  year  stock,  at  cost    .      310,461.83 

.     7,810.60 
.  26,410.20 

Sales  at  cost                          $2  166  389.69 

$34,220.80 
.     8,010.10 

Actual  income  from  sales.  .  .  2,881,246.17 

Sales,  at  cost.  .  . 

Gross  profit          .    .               $   714,856.48 

.$26,210.70 
.  34,073.91 

Expense,  as  detailed  above  .  .      764,082.97 

Actual  income  from  sales  
Gross  profit  

Apparent  loss.  .  .               .  .  .$     49,226.49 
Discounts  .    .      231216.45 

.$  7,863.21 
.     5,391.00 

Expenses,  as  detailed  above  .  . 
Net  profit 

Net  profit                               $    181  989  96 

$  247221 

FOR  A  SH( 

That  expenses  in  this  New  York  state 
shoe  store  are  about  normal  is  estab- 
lished   by   investigations   made    by   the 
Harvard    Graduate    School   of    Business 
Administration,  trade  organizations  and 
SYSTEM. 

Advertising  and  donations  $  2,008.41 
Bad  debts  98.60 

)E  STORE 

Salaries  (including  owner's)  .  . 
Supplies 

.     8,106.50 
371.25 

Stock,  first  of  year,  at  cost.  .  . 
Purchases  for  year,  at  cost  .  .  . 

End  of  year  stock,  at  cost  .... 
Sales  at  cost 

.  24,680.42 
.  51,414.55 

$76,094.97 
.  22,365.86 

.$53,729.11 
.  72,498.24 

Delivery   .                                          264  82 

Depreciation  and  shrinkage  ...        401  .14 
General  expenses                             1  645  75 

Actual  income  from  sales  

Heat  and  light  '40288 

.$18,769.13 
.   18,331.50 

Insurance  and  taxes                          892  15 

Expenses,  as  detailed  above  .  . 
Net  profit.  .  . 

Interest  on  investment  at  6%  .     1,740.00 
Rent  .     2,400.00 

.$     437.63 

166  _  HOW  MERCHANTS  GET  AHEAD  _ 

Consumers  do  not  demand  round-figure  prices;  they 
willingly  pay  a  profit  on  the  service  they  desire  when 
shown  that  it  costs  the  distributor  money.  The  customer 
gauges  prices  by  the  satisfaction  he  secures,  not  by  the 
distributor's  profits.  All  the  consumer  asks  is  plainly 
marked  prices.  These  he  has  had  for  several  centuries  — 
the  Spectator  for  November  26,  1712,  says  of  John 
Morton,  a  merchant,  '  *  He  imposes  upon  himself  a  rule  of 
affixing  the  value  of  each  piece  he  sells,  to  the  piece 
itself;  so  that  the  most  ignorant  servant  or  child  will 
be  as  good  a  buyer  at  his  shop,  as  the  most  skilful  in 
the  trade.  '  '  Every  merchant  is  a  John  Morton  today  as 
a  matter  of  course;  but  not  all  know  costs  plus  mark- 
downs  by  lines,  and  not  all  mark-up  more  than  that 
percentage  according  to  the  nature  of  each  line.  Still 
John  Wanamaker  would  face  ruin  in  a  day  if  he  did 
not. 


a  few  hours  off  some  day  and  list  the  problems 
JL     your  business  faces  under  these  factors  that  shape 
profits.     It  is  by  such  analysis  that  stores  grow. 

The  strength  of  the  consumers'  demand  follows  the 
nature  of  the  goods  in  our  list  of  profit  determining 
factors.  It  is  not  possible  to  consider  any  one  of  these 
factors  without  regard  to  the  effect  of  the  others  upon 
it.  Demand  may  not  be  profitable  if  competitors  supply 
it  easily.  As  surely  as  nothing  sells  without  demand,  the 
highest  profits  occur  when  a  distributor  secures  the 
means  of  satisfying,  almost  exclusively,  a  portion  of  a 
general  demand.  Therefore,  style  changes  and  novelties 
often  bring  attractive  returns  if  they  touch  a  strong 
demand.  These  facts  explain  the  attention  successful  dis- 
tributors give  to  locating  fast  selling  lines  and  surround- 
ing them  with  attractive  equipment  or  service. 


MAKING  SURE  O*  A  PROFIT 


167 


FIGURE   XVI: 

Economists  show 
that  net  profit  is 
set  by  the  business 
man's  ability  and 
the  risk  pitted 
against  capability, 
after  the  nature  of 
the  goods,  competi- 
tion's strength 
and  the  consum- 
er's demand  have 
been  considered. 
This  point  of  view 
— that  centered  on 
the  economic  fac- 
tors involved — is 
charted  above  in 
Column  I. 

The  next  column  (IT)  analyzes  a  second 
viewpoint — the  accounting  and  statistical 
problem.  With  the  figures  here  suggested 
regularly  reported,  there  are  established 
checks  at  the  entrances  or  exits  for  money 
and  for  goods. 

However,  both  tested  theories  (Column  7), 
and  practical  ways  for  figuring,  (Column 
//),  depend  almost  entirely  on  the  methods 
behind  the  business,  (Column  III). 


168  HOW  MERCHANTS  GET  AHEAD 

The  fourth,  and  last,  profit  factor  is  this  intensity  of 
competition.  Since  very  few  distributors  market  mo- 
nopolies, they  find  their  profits  in  part  determined  by 
the  strength  of  the  competition  in  their  territories.  They 
consequently  face  the  difficulty  of  deciding  between  a 
few  long  profits  and  many  narrow  margins.  The  entire 
make-up  of  their  enterprises  may  be  affected  by  the 
course  they  select.  Moreover,  since  a  decision  to  propor- 
tionately lessen  expenses  by  expanding  the  sales  volume 
often  falls  short  of  its  object,  many  make  this  factor 
their  Waterloo. 

Exactly  as  important  as  business  capability,  stock 
characteristics,  demand  and  competition — these  four 
profit  factors — are  sound  accounting  and  mathematical 
methods  for  figuring  mark-ups.  Because  custom  has  at- 
tempted to  fit  elaborate  bookkeeping  practices  to  the 
exceedingly  simple  plus  and  minus  accounting  problems 
involved  in  ninety  per  cent  of  our  stores,  many  distrib- 
utors go  ahead  blindly. 

Two  types  of  facts — inventory  figures  and  accurate 
costs  of  doing  business — are  necessary.  They  can,  so  we 
have  seen,  be  kept  on  sets  of  cards  without  reference 
to  the  traditional  ledgers,  journals,  cash  books  or  trial 
balances.  The  relation  of  costs  to  profits  are  summarized 
in  the  chart  on  page  167. 

The  earnest  distributor  keeps  at  least  figures  which 
enable  him,  (1)  to  add  purchases  to  an  inventory  taken 
at  the  beginning  of  a  period,  (2)  subtract  the  stock  on 
hand  at  the  end  of  this  period,  (3)  and  subtract  the 
remainder,  (4)  in  addition  to  every  cent  he  has  paid 
out  during  the  period,  (5)  including  a  fair  wage  for 
himself  plus  interest  on  the  money  invested  in  his  busi- 
ness, from  his  sales.  This  remainder  is  net  profit. 

Once  he  finds  how  easy  it  is  to  get  in  this  way  some 


MAKING  SURE  OF  A  PROFIT 169 

idea  of  his  net  profits,  the  value  of  going  deeper  into  his 
business  becomes  evident.  He  then  discovers  that  after 
all  it  is  not  so  much  of  a  task  to  follow  the  net  and 
gross  profits  on  each  line;  to  pick  the  slow  and  fast 
movers;  to  apportion  the  overhead  correctly,  even  by 
lines;  to  demonstrate  how  many  lines  he  can  safely 
carry ;  to  establish  the  quickest  way  to  move  stickers ;  to 
show  what  form  of  advertising  brings  him  the  most 
money,  and  to  fix  his  losses  from  bad  debts.  In  short,  he 
pulls  himself,  without  any  trouble  whatsoever,  away 
from  the  greatest  danger  indicated  by  failure  statistics 
— incompetence. 

Once  he  has  adequate  facts  and  cost  figures  at  hand, 
still  another  difficulty  confronts  the  distributor — the 
actual  calculation  of  selling  prices.  For  several  years 
those  anxious  to  help  the  retailer  have  earnestly  ad- 
monished: " Don't  fool  yourself  by  marking  up  on  the 
cost  price." 

HOW  to  figure  mark-ups  is  an  old  problem  which 
has  been  discussed    pro  and  con  more  than  the 
simplicity  of  the  solution  warrants.     Here  is  the  solution. 

Although  many  merchants  forget  that  a  percentage 
of  the  cost  price  is  smaller  than  the  same  percentage 
of  the  selling  price,  it  is  absolutely  incorrect  arbitrarily 
to  state  that  mark-ups  from  cost  figures  mislead.  It  is 
quite  sound  to  calculate  from  cost  prices  if  all  the  per- 
centages used  relate  to  cost  figures.  As  a  matter  of 
fact,  many  progressive  concerns  maintain  both  cost  and 
selling  price  mark-up  records.  But  most  merchants, 
quite  naturally,  think  of  expenses  as  so  much  of  their 
sales.  If  expenses  expressed  as  percentages  of  sales  are 
figured  on  costs — smaller  amounts  than  the  sales,  of 
course — mistakes  result.  To  avoid  this  blunder,  it  is 


170  HOW  MERCHANTS  GET  AHEAD 


PROFIT  in  EIGHTY  LINES  and  TRADES 

Each  of  the  percentages  assembled  below  gives  either  net  or  gross  profits  for 
an  actual  line,  store,  or  manufacturing  plant.  For  instance,  the  grocery 
store  mentioned  in  the  column  is  near  KimbarJc  Avenue  and  Fifty-third 
Street,  Chicago.  All  the  distributive  channels  are  included.  By  combining 
the  figures  it  is,  in  several  instances,  possible  to  obtain  a  rough  estimate  of 
the  cost  of  getting  certain  lines  from  the  factories  to  the  consumers'  doors 


TYPICAL  GROSS  PROFITS  (ON  SALES) 

Per  cent 

American  Family  Soap  (at  full  price) 16.36 

Barington  Hall  Coffee  (at  full  price) 20 

Borden's  Eagle  Milk  (at  full  price) 13.33 

Campbell's  Soup  (at  full  price) 25 

Chain  grocery  stores  (three)  (49  H%  reported  by  the  Asso- 
ciation for  Improving  Conditions  of  the  Poor) 15  to  49.5 

Clothing  stock  (southern  store;  range  is  from  3  to  37%)  ...  20       (average) 
Collar  stock  (men's),  New  York  City  (cost  to  do  business, 

29%) 26 

Cotton  dress  goods  stock 32  to  41 

Cream  of  Wheat  (at  full  price) 16.66 

Dr.  Price's  Baking  Powder  (at  full  price) 23.33 

Fels'  Naphtha  Soap  (at  full  price) 20 

Furniture  store  (cost  of  doing  business,  31%) 49 

Grocery  store    (cost  of  doing   business,  20%)    (Sales, 

$101,877.00) 25       (average) 

Hat  stock  (men's) 39       (average) 

Hardware  (large  store) '. 33.33  (average) 

Hardware  line  (jobber  made  17%) 31 

Hardware  store  (town  of  2,000)  (cost  to  do  business,  25%)  37.5    (average) 

Instalment  hardware  line 62 


Ivory  Soap  (at  full  price) 

Kellogg's  Toasted  Corn  Flakes  (at  full  price) 
Large  department  store  (average  for  seven  years) 

Malt  Breakfast  Food  (at  full  price) 

Mail  order  house  (largest  in  the  world) .  . 


..  20 
..  22.33 
.  .   24.5 
. .  16.66 

25       (average) 


Meat  line  (No.  2  loin) 33.33 

Meat  line  (ribs) 40 

Meat  line  (500  Ib.  steer — cost  13  He.  per  lb.;  sold  for  14 ^ 

to  16c.  per  lb.) . .  12 

Neckwear  stock  (New  York  City — used  as  a  "loss  leader')  26 

Pet  Milk  (at  full  price) 13.33 

Pillsbury's  Best  Breakfast  Food  (at  full  price) 16.66 

Quaker  Oats  (at  full  price) 21.7 

Ralston  Breakfast  Food  (at  full  price) 16.66 

Ready-made  clothing  lines  (Tariff  Board) 33.33 

Restaurant  menu   (highest  profits  taken  on  salads  and 

pastries;  lowest  on  meats) 0  to  300 

Royal  Baking  Powder  (at  full  price) 20.84 

Rumford  Baking  Powder  (at  full  price) 23.31 

Shredded  Wheat  Biscuits  (at  full  price) 20 

Shoe  store  ($5 — $6  lines — at  retail) 25  to  33.33 

Shoe  store  ($6— $15  lines— at  retail) 45       (average) 

Shoe  store  ($4.50  shoes  cost  $2.40  and  $2.65;   $5.00  shoes 

-cost  $2.85  and  $3.25) 40      ! (average) 

Syrup  line  (at  full  price) ~ 18 

Uneeda  Biscuits  (at  full  price) 16.66 

Variety  goods  bargain  basement 15  to  25 

Variety  goods  store  (average  cost  5c.  articles,  40c.  a  doz.; 

average  cost  lOc.  articles,  80c.  a  doz.;  average  cost  25c. 

articles,  $2.00  a  doz.) 25  to  33.33 

Wesson  Salad  Oil  (at  full  price) 20 


MAKING  SURE  OF  A  PROFIT 


171 


TYPICAL  NET  PROFITS  (ON  SALES) 

RETAIL  Per  cent 

Cash  grocery 3  to  5 

Clothing  stock  (southern  store)  4 

Commissary  and  general  store  8  to  10 

Dry  goods  store  (small  town)  . .  10  to  12 

Dry  goods  store  (large  city) ...  5  to  7 

Furniture  stock 18 

Grocery 4to5 

Hardware  store  (town  of  5,000)  12.5 
Large  department  store  (average 

for  seven  years) 3.1 

Mail  order  houses  (average  three 
years;  two  of  the  largest  con- 
cerns; cost  of  doing  business  of 

the  largest,  15%) 6.8 

Variety  goods  store 10  to  12 

Variety  goods  bargain  basement .  5  to  10 

WHOLESALE 
Wholesale    cotton    dress    goods 

concern 3 

Wholesale  grocery  concern  (cost 

of  doing  business,  8%) 2 

Wholesale  shoe  concern 4.5 

MANUFACTURING 
Cotton  manufacturers  (50  South 

Carolina  mills,  on  the  capital) .  10 


Cotton  manufacturers  (thirty- 
year  average,  100  English 
companies,  on  the  capital) ....  5.33 

Packing  concern  (also  sells  at 
wholesale) 2.5 

Shoe  manufacturer 5 


TYPICAL  LARGE  DEPARTMENT 
STORE  GROSS  PROFITS 

Per  cent 

Art  goods  or  needlework 28 

Blankets,  comforters,  pillows,  sheets, 

etc 27 

Cameras 26 

China  or  glass  ware 32 

Clocks  and  watches 28 

Colored  dress  goods 28 

Harness 31 

Infants'  clothing 30 

Leather  goods 32 

Linings 32 

Neckwear  (women's) 29 

Notions 31 

Trimmings 28 

Upholstery 33 

Wrappers 26 


only  necessary  to  keep  clearly  in  mind  what  your  per- 
centages actually  tie  up  with — sales  or  costs.  This  table 
shows  the  difference  between  percentages  on  sales  and 
costs — marking  up  an  article  50%  of  its  cost  price  is 
exactly  the  same  as  adding  33%%  of  its  selling  price: 


Selling  Price  Expressed 

Percentages  as  Fractions 

50         1/2  1/1, 

331/3 1/3  1/2, 

284/7 2/7  2/5. 

25         1/4 

20         1/5 

i2y2   i/s 

10        1/10 


Corresponding 

Cost  Price 
Percentages 

100 

50 

40 

1/3 331/3 

1/4 25 

1/7 142/7 

1/9 111/9 


Here  is  an  example  to  illustrate  these  facts.  Suppose 
a  merchant  who  finds  it  costs  him  25%  of  his  sales  to  do 
business  and  wants  a  net  profit  equal  to  10%  of  his  sales, 


172 HOW  MERCHANTS  GET  AHEAD 

desires  to  secure  a  sound  profit  on  an  article  which  cost 
him  $10.00.  He  knows  that  the  selling  price  represents 
all,  or  100%,  of  his  income,  and  since  the  costs  and 
the  profit  amount  to  35%  of  this,  the  cost — in  this  case 
$10.00 — can  be  nothing  more  or  less  than  65%.  If  $10.00 
are  65%  of  the  selling  price  of  this  particular  article, 
then  1%  is  1/65  of  $10.00  or  $0.1538.  If  $0.1538  are 
one  hundredth,  the  entire  selling  price  will  then  become 
100  X  $0.1538,  or  $15.38. 

But  now  consider  that  this  merchant  records  his  ex- 
penses and  net  profits  as  percentages  of  the  cost  of  his 
stocks.  He  would  find  them  to  be  53%%.  To  get  his 
selling  price  on  the  same  $10.00  item  he  would  simply 
add  53%%  to  it  and  get,  as  before,  a  selling  price  of 
$15.38.  But  if — this  is  the  nigger  in  the  woodpile  they 
talk  so  much  about — but  if  he  became  confused,  took 
the  35%  selling  price  mark-up  as  a  cost  percentage,  and 
added  only  $3.50,  he  would  get  a  very  unsound,  ruinous 
selling  price — $13.50.  This  is  the  type  of  mistake  re- 
sponsible for  the  agitation  about  marking  up  on  the  sell- 
ing price — quite  evidently,  one  that  is  easily  avoided. 

BIG,  easy-going  profits  were  possible  fifteen  or  twenty 
years  ago.     But  today  it  is  necessary  Jo  build  up 
equivalent  gains  with  a  number  of  small  profits. 

This  confusion  of  profit  figuring  methods,  combined 
with  the  variable  nature  of  the  factors  that  shape  net 
returns,  makes  the  setting  up  of  hard  and  fast  standards 
impossible.  Recently  the  Philadelphia  grocers  cut  prices 
to  a  certain  trade  class  eight  per  cent ;  St.  Louis  retailers 
at  once  declared  that  somebody  had  made  a  disastrous 
mistake,  since  five  per  cent,  in  their  opinion,  measures 
the  average  net  gain  on  groceries. 

Some  believe  that  a  $2.25  shoe  retailed  for  $3.50  gives 


MAKING  SURE  OF  A  PROFIT 173 

a  good  value,  still  others  regularly  market  a  $3.00  shoe 
for  $5.00.  One  investigator  reports  finding  that  retail 
distributive  gross  profits  range  from  24%  to  35% ;  an- 
other fixes  upon  from  9%%  to  30%,  with  an  average  at 
23l/2%;  and  a  third  considers  33^%  a  fair  average  sell- 
ing price  mark-up  for  all  lines,  with  normal  costs  be- 
tween 22%  and  26%,  and  reasonable  net  gains  over 
71/3%,  but  under  11%%. 

Nevertheless,  typical  gross  and  net  profits  are  valuable, 
if  for  no  other  reason  than  that  they  point  the  fast 
turning,  narrow-margin  lines.  They  fix  just  when  to 
stand  up  for  a  profit.  At  least  they  show  what  the  other 
man  is  doing — mighty  helpful  knowledge,  now  that  the 
days  of  big,  easy-going  profits  have  faded. 

There  can  be  no  doubt  about  this  dwindling  of  profits. 
In  1899  the  average  grocer  marked  up  his  stocks  eighteen 
or  twenty  per  cent;  today  twenty-five  is  more  usual. 
The  By-Products  Coke  Corporation  of  Chicago  finds 
that  rising  costs,  combined  with  other  conditions,  cut 
its  net  profits  exactly  2.42%  during  1913. 

This  chapter  brings  together  several  hundred  typical 
profits.  Since  the  low  man  usually  sets  the  market's 
price  within  his  trade  radius,  it  is  well  worth  the  time 
to  study  these  normal  figures.  But  a  sufficient  array  of 
modifying  restrictions  has  been  brought  forward  to  pre- 
vent their  receiving  consideration  as  absolute  standards. 
The  charts  on  pages  111,  120  and  161,  collect  and  average 
typical  cost,  discount  and  net  profit  figures.  SYSTEM'S 
investigators  secured  some  of  these  facts,  trade  organiza- 
tions worked  out  others,  and  a  few  only  recently  came 
before  congressional  committees  handling  legislation 
touching  business.  With  all  these  typical  profit  facts 
the  percentages  refer  to  selling  prices. 

Business  is  no  stronger  than  the  weakest  function — 


174 HOW  MERCHANTS  GET  AHEAD 

if  these  averages  indicate  waste  motions  in  distribution, 
this  weakness  will  be  felt  all  over  the  land.  Distributors 
already  sense  the  danger — dwindling  bank  balances 
supply  exceedingly  effective  barometers.  They  first  of 
all  turn  to  costs  of  doing  business — find  out  exactly  where 
they  stand.  The  next  precaution  is  to  prune  these  costs 
to  the  lowest  figures  possible — for  cutting  off  a  bit  from 
the  expense  total  means  widening  the  profit  margin. 
And  the  profit  margin  supplies  the  wherewithal  for 
keeping  up  with  rising  costs. 

Not  until  all  of  this  is  done  can  a  business  man  turn 
to  consumers  goaded  to  insistence  by  the  high  cost  of  liv- 
ing and  confidently  say :  ' '  The  conditions  start  beyond 
my  control — I  understand  that  it  was  up  to  me  to  help 
myself  out  first,  and  without  assistance  from  anyone, 
without  being  forced  to  it,  I've  eliminated  every  false 
motion,  every  waste— over  and  above  these  rock-bottom 
costs  of  mine  you've  got  to  allow  me  to  stand  up  for  a 
sound  profit." 


XI 


MORE  TURNOVERS, 
THE  ANSWER  TO  HIGHER  COSTS 


TURNOVER  is  the  measure  of  the  work  each  dollar 
in  your  business  does  for  you.  It  is  at  once  the 
way  to  profits  and  a  check  on  your  results.  The  world 's 
largest  manufacturing  house  in  one  line,  for  instance, 
has  all  the  brain-power  of  its  organization  concentrated 
just  now  on  an  effort  to  do  better  than  turn  its  capital 
once  in  two  years.  Prices  are  so  standardized  in  its 
field  that  they  literally  can  not  be  raised,  though  the 
cost  of  doing  business  is  constantly  increasing.  The 
only  way  this  company 's  capital  can  make  a  living  wage, 
therefore,  is  to  spend  less  time  on  each  job — to  make 
quicker  turnovers. 

With  this  end  in  view,  the  management  is  trying 
to  cut  down  its  ordinary  supply  of  raw  materials  with- 
out hampering  production,  to  speed  up  factory  processes 
without  adding  expense,  to  carry  smaller  stocks  of 
finished  goods  without  sacrificing  sales,  and  to  short- 
cut collections  without  making  payments  too  hard  for 
prospects  or  customers.  In  wholesaling  and  retailing 
the  same  trend  is  evident. 

Turn  your  capital  oftener,  then,  is  the  answer  heads  of 
concerns,  large  and  small,  are  making  to  rising  costs. 
Money  in  a  business  must  earn  more  than  bank  interest. 
It  buys  raw  material  or  stocks  and  pays  running  ex- 


176 HOW  MERCHANTS  GET  AHEAD 

penses.  When  costs  rise  with,  selling  prices  fixed,  makers 
and  distributors  must  buy  and  sell  on  narrower  margins 
of  profit.  But  turn  stock  quickly  and  the  little  profits, 
totaled  for  a  year,  may  equal  or  exceed  a  net  gain 
based  on  wider  margins  over  a  longer  time. 

Standards  for  judging  just  how  hard  other  men  have 
made  their  capital  work  and  the  methods  by  which 
they  have  made  more  turnovers,  drawn  from  the  capital 
investment  figures  and  the  stock  and  sales  reports  of 
more  than  seven  hundred  going  concerns,  are  here  as- 
sembled. They  are  as  important  as  any  of  the  facts  a 
merchant  should  have  in  his  struggle  against  rising 
costs. 

Rapid  turnovers,  for  example,  are  today  securing  the 
trade  of  a  new  five-story  department  store  in  a  small 
Indiana  city  for  a  less  pretentious  shop  diagonally  across 
the  street.  Its  quick  turns  allow  the  smaller  store, 
which  is  run  by  three  brothers  still  in  their  thirties,  to 
make  money  on  margins  so  narrow  that  it  repeatedly 
cuts  under  the  prices  set  by  the  big  rival's  slow  turn- 
overs. The  owners  of  the  larger  store,  who  bought  their 
first  stock  in  1850,  know  bankruptcy  is  ahead  if  rising 
costs  continue  to  mount  into  their  dwindling  profits. 
Bewildered  for  the  first  time  in  sixty  years,  they  are 
fighting  to  save  their  sinking  business.  They  have  put  in 
an  accurate  cost-keeping  system,  purchased  new  fixtures, 
and  advertised  heavily,  still  each  January  of  the  last 
three  years  has  seen  them  meet  deficits  by  reducing  the 
savings  set  aside  for  their  families. 

The  young  brothers,  also  faced  by  rising  costs,  clearly 
understand  why  they  are  winning — they  divide  the 
high  costs  over  many  turns,  a  remedy  for  diminishing 
profits  perfected  since  their  older  rivals  learned  to 
merchandise.  These  figures,  which  were  taken  from 


MORE    TURNOVERS 


177 


Turnovers  In  Representative  Stores 
f     J  =  One  Turnover 


FIGURE  XVII:  The  circles  vary  in  size  roughly  according  to  the  rela- 
tive net  profits.  When  two  sizes  appear  for  the  same  line,  the  smaller 
represents  fractions  of  turnovers.  This  is  also  true  of  the  chart  on  page  189 

the  books  of  the  two  stores  during  last  October,  epitomize 
the  situation :  average  stock,  at  cost,  in  the  three  brothers ' 
ready-to-wear  section,  which  sells  annually  clothes  worth 

12 


178 HOW  MERCHANTS  GET  AHEAD 

about  $145,670  at  wholesale,  $14,481 ;  corresponding  facts 
from  the  big  store— sales,  $125,820 ;  stock,  $24,899.  Since 
they  are  securing  twice  as  many  turnovers,  the  brothers 
make  money  on  mark-ups  which  would  not  pay  the  larger 
store  a  cent. 

* '  Quick  sales  at  small  profits  is  the  modern  idea, ' '  the 
elder  of  these  three  brothers  says.  ' '  My  brothers  and  I 
got  our  training  under  one  of  the  most  successful  mer- 
chants in  New  England.  Then  we  came  west  to  try 
out  his  methods.  We  picked  this  city  because  the 
heaviest  competition  is  controlled  by  two  elderly  men 
who  learned  the  business  in  the  days  when  the  jobbers 
regularly  gave  six  months'  credit,  and  the  retailers  four 
or  six.  Theirs  is  the  old  idea — selling  slow,  at  a  good 
profit.  We  have  in  mind  the  Greek  banana  man  who 
puts  his  money  into  fruit  in  the  morning  and  has  it  back 
again  by  night,  plus  two  or  three  per  cent  net  profit. 
He  makes  over  six  hundred  per  cent  on  his  capital 
annually,  if  he  is  out  every  working  day. 

' '  We  succeed  in  turning  our  money  seven  times  a  year 
now.  I  don't  believe  our  rivals  do  better  than  three. 
We  are  quite  satisfied  with  five  per  cent  net  on  a  turn — 
or  thirty-five  on  our  investment  in  stock.  They  have 
to  net  over  eleven  per  cent  in  order  to  equal  our  showing 
at  the  end  of  the  year.  We  believe  that  it  is  better  to  get 
three  sales  at  five  per  cent  net,  as  long  as  you  cover  your 
costs,  than  it  is  to  make  one  at  ten.  We  build  our  big 
profit  from  a  number  of  little  profits — I  think  it's  some- 
what like  carrying  into  merchandising  a  saying  of 
Franklin 's  which  father  made  me  learn  by  heart :  '  Five 
shillings  turned  is  six,  turned  again  is  seven  and  three 
pence,  and  so  on  till  it  becomes  a  hundred  pounds.'  ' 

These  ideas  and  methods  are  not  unique.  In  prac- 
tically every  city  and  town  some  retailer  or  wholesaler 


MORE  TURNOVERS 179 

is  using  them  to  overcome  competition  and  master  rising 
costs.  In  Logansport,  Indiana,  for  example,  H.  S.  Sey- 
boid,  of  the  Seyboid  Dry  Goods  Company,  cut  $5,000 
from  his  linoleum  inventory  and  handled  more  sales.  In 
Columbus,  Indiana,  A.  Rf  Rosenbush  reduced  his  hat 
stock  over  $800  and  satisfactorily  cared  for  his  usual 
trade.  Numerous  like  instances  show  that  shrewd  mer- 
chandising on  small  stocks  is  enabling  distributors  to 
pay  rising  costs  profitably. 

MORE  turnovers  enable  you  to  meet  rising  costs  and 
new  competition.  They  also  secure  absolute  savings 
of  several  sorts  but  must  be  based  on  sound  profits. 

In  much  the  same  manner  automatic  machinery,  new 
office  appliances  and  scientific  management  have  helped 
manufacturers  and  office  men  turn  their  capital  quicker. 
When  management  finds  a  better  way  for  handling  men, 
money  invested  in  wages  yields  higher  returns;  when 
an  inventor  perfects  an  office  appliance  that  shortens 
tasks,  again  capital  may  be  placed  more  advantageously ; 
and  when  an  automatic  machine  cuts  factory  work,  the 
money  spent  for  it  gives  larger  dividends  than  resulted 
before  the  invention.  More  turnovers  come  from  these 
advances,  bringing  new  profits  for  meeting  rising  costs. 
Net  gains  nevertheless  dimmish  in  many  industries  be- 
cause costs  increase  faster  than  the  gross  profits.  Of 
course,  the  large  sales  volumes  of  today,  when  they  pro- 
portionately lessen  expenses,  also  make  it  possible  for 
manufacturers  and  distributors  to  declare  satisfactory 
dividends  on  lower  net  returns.  But  increasing  the  stock 
turn,  usually  a  far  more  adaptable  means,  accomplishes 
the  same  object — higher  profits  with  no  advance  in  price. 

If,  then,  more  turnovers  is  the  business  man's  answer 
to  rising  costs,  why  have  they  been  neglected  ?  It  is  not 


180 HOW  MERCHANTS  GET  AHEAD 

difficult  to  explain.  More  than  ordinary  knowledge  is 
required  to  secure  a  rapid  stock  turn  and  it  has  taken 
time  for  merchants  to  learn.  Some  got  the  knack  quickly 
— our  largest  department  stores,  prospering  on  rapid 
turns  at  exceedingly  narrow  profit  margins,  resulted. 
The  majority,  however,  saw  no  need  for  careful  mer- 
chandising, since  profits  were  long  and  costs  low.  But 
the  rise  in  costs  which  has  marked  the  last  ten  years — 
over  three  per  cent  in  retail  lines — forced  them  to  either 
learn  or  go  out  of  business.  When  profits  were  generous, 
competition  scattered,  credits  long,  and  transportation 
slow,  it  was  safe,  or  even  necessary,  to  buy  a  year  or  six 
months  ahead.  Today,  following  the  rise  in  costs,  mar- 
gins are  not  generous  enough  to  allow  the  holding  of 
profits  on  the  shelves  in  merchandise.  The  hand-to- 
mouth  buying  which  results  when  failure  is  avoided, 
demands  a  careful  gauging  of  demand  and  a  compre- 
hensive stock-keeping  system.  Since  these  restrictions 
set  no  easy  task,  the  commercial  agencies  tell  us  that 
ninety  per  cent  of  the  retailers  in  America  over-buy. 
Further,  the  reports  of  retail  failures  from  the  three 
causes  which  reflect  the  severity  of  the  work — incom- 
petence, neglect  and  inexperience — grew  heavier:  33.3 
per  cent  of  all  the  bankruptcies  in  1911,  36.8  in  1912. 
This  situation  is  of  importance  to  all  business,  for  it 
touches  the  profits  of  every  enterprise.  The  happiness 
and  prosperity  of  the  homes  are  concerned,  since  over- 
the-counter  prices  must  finally  pay  the  cost  of  disasters 
in  the  factories  and  stores.  To  improve  conditions 
enough  to  overcome  the  reduction  in  net  profits,  it  is 
necessary  that  the  merchants  be  given  two  types  of 
assistance  in  their  fight  against  rising  costs  and  tighten- 
ing competition — first,  national  standards  against  which 


MORE  TURNOVERS 181 

to  check  their  stock  turns;  second,  tested  methods  for 
speeding  up  the  rates  of  turnover. 

National  stock  turn  averages  from  over  seven  hundred 
American  stores  have  been  figured  from  SYSTEM'S  in- 
vestigations to  give  the  averages  for  the  ten  standard 
types  shown  in  the  following  list.  The  turnovers  are 
for  the  complete  stocks  and  have  no  reference  to  either 
the  character  or  the  number  of  the  lines  carried. 

Average  Number  of 
Turnovers  Obtained 
Type  of   Store  Annually 

Grocery    10 

Department    7 

Variety   goods 6 

Drug    4.5 

Dry  goods 4 

Hardware    3.5 

Furniture    3 

Shoe 2.1 

Clothing    2 

Jewelry    1.5 

From  the  books  of  several  hundred  stores  carrying 
departmentalized  stocks  averages  for  twelve  standard 
lines  were  obtained  as  shown  below. 

Average  Number  of 
Turnovers  Obtained 
Line  Annually 

Notions 9 

Corsets     8 

Women 's  ready-to-wear 6 

Wall  paper  4.2 

Men 's    furnishings 4.2 

Underwear    4.1 

Hosiery 4 

Gloves    3.5 

Dress  goods   3.2 

Silks 3.1 

Domestics    3 

Carpets    1.5 

These  average  turnovers  are  for  typical  lines  and  bear 
no  relation  to  the  turns  normally  obtained  through  com- 
plete store  stocks. 


182 HOW  MERCHANTS  GET  AHEAD 

"With  these  averages  to  check  against,  retailers  are  in 
a  position  to  decide  if  their  stock  turns  rank  above  or 
below  the  results  secured  in  other  stores.  Turns  are 
easily  figured  by  dividing  the  sales  for  any  period,  at 
cost,  by  the  cost  of  the  average  stock  on  hand  during 
the  period.  Once  he  has  secured  turnover  and  cost 
figures  for  his  store,  it  is  not  difficult  for  the  retailer 
to  demonstrate  the  added  profit  which  an  extra  turn 
will  bring.  The  net  gains  climb  when  the  expenses  are 
cut,  the  turnovers  increased,  the  totals  owing  from  cus- 
tomers reduced,  or  the  gross  profits  lengthened.  As  soon 
as  larger  stocks  accumulate,  customers  neglect  to  pay, 
or  expenses  increase,  the  net  profits  dwindle.  To  show 
these  conditions,  it  is  only  necessary  to  express  the  cus- 
tomers' balances  and  the  stocks  as  equal  to  so  many 
average  days'  sales.  Your  sales,  at  cost,  reach  $360,000 
a  year,  or  $1,000  a  day,  let  us  suppose.  Then,  if  your 
average  stock  costs  $30,000,  it  equals  thirty  days'  sales, 
and  the  total  due  from  customers,  fifteen  days',  if  we 
take  it  as  $15,000.  Also,  if  your  gross  profit  is  twenty- 
five  per  cent  and  your  cost  of  doing  business  twenty, 
the  net  profit  for  the  period  will  equal  the  difference 
between  these  two  percentages  divided  by  the  sum  of 
the  stock  and  the  customers'  accounts  due,  expressed  in 
days,  and  multiplied  by  360.  Or,  in  figures : 

Net  profit  on  your  capital  for  the  year  =  30.4.15  x  ^60, 
or  40%. 

If  the  stock  is  increased  to  a  sixty  days'  supply, 
the  turnover  lessens,  and  the  net  profit  at  once  falls : 

Net  profit  on  your  capital  for  the  year  =  gniig  x  360, 
or  24%. 

But  if  you  buy  closer  and  push  the  goods  on  the  shelres 


MORE  TURNOVERS 183 

down  to  a  fifteen  days'  stock,  the  increased  turnover 
carries  the  net  profit  upward: 

Net  profit  on  your  capital  for  the  year  =  1  _"""  -  x  360, 
or  60%. 

Although  these  relations  of  profits  to  turnovers  are 
universal,  individual  conditions  vary  the  number  of 
turns  secured  in  specific  stores.  The  standards  given  in 
this  chapter  therefore  require  modification  when  local 
influences  are  unusual.  The  turns  obtained  in  a  large 
department  store  and  in  a  country  general  store  will 
differ  because  of  the  heavy  buying  power  touched  by  the 
city  store  and  its  managers'  skill.  The  turnover  aver- 
ages which  follow  are  from  several  large  department 
stores  and  a  score  or  more  departmentalized  concerns  in 
country  districts: 

Number  of  Turns  Obtained 

Annually  : 

City  Depart-  Country  Gen- 
Stock                                  ment  Stores  eral  Stores 

Books     4  1.5 

Candy    15  9 

Clocks    2.5  1 

Embroideries    3.5      *  3 

Furs  . .- 5  3 

Infants '    clothing 5 

Laces   4  2 

Linens    3.5  2 

Men 's    hats 7  4 

Pianos     9  4 

Eibbons     6  2 

\     Stationery     5 

Umbrellas  and  canes 11  3 

Trunks     5  1.5 

Veilings     5.5 

Wash  goods  and  flannels..       5  3.2 

The  National  Dry  Goods  Association  has  collected 
still  another  group  of  turnover  facts  which  refers  exclu- 
sively to  the  dry  goods  trade.  This  set  of  figures  is 


184 HOW  MERCHANTS  GET  AHEAD 

given  below  and  should  be  considered  under  the  re- 
strictions mentioned  on  page  14  in  connection  with 
related  statistics: 

Average  Number  of 
Turnovers  Obtained 
Line  Annually 

Candy    13.27 

Skirts  and  petticoats   7.22 

Millinery     6.63 

Coats,    suits    and    dresses 5.5 

Stoves,  refrigerators  and  cookers 5.45 

Shirtwaists    5.14 

Patterns    5.05 

Furs     4.55 

Children 's   wear    4.45 

Corsets     4.43 

Toys  and  books   4.42 

Umbrellas    4.38 

Sewing   machines    4.37 

Neckwear  and  handkerchiefs   4.26 

Wash    goods    4.17 

Notions    3.97 

Linings    . 3.77 

White  goods  3.76 

Hosiery     3.65 

Furniture    3.65 

Jewelry,  toilet  goods,  bags  and  belts 3.45 

Linens    -. 3.4 

Trunks  and  bags  3.39 

Hair  goods   3.22 

Muslin    underwear    3.20 

Table  linen   and  towels    ,...  3.09 

Eibbons     3.01 

Gloves    and    veilings    2.96 

Silks    2.91 

Dress  goods    2.9 

Knit  underwear  2.89 

Wall  paper  and  decorations   2.88 

Men 's   furnishings    2.73 

Boys '  clothing 2.56 

Men 's  clothing    2.53 

Laces   2.50 

Infants '  wear    2.41 

Art  goods   and   needlework 2.34 

Embroideries  and  trimmings 2.26 

Bugs,  carpets  and  linoleums  2.18 

Shoes  and  rubbers    2.18 

China,  glass  and  house  furnishings 2.03 


MORE  TURNOVERS 185 

There  are  variations  as  marked  in  the  number  of  turns 
obtained  by  stores  selling  single  lines.  The  average  turn- 
over made  by  the  groceries  investigated  was  ten,  but 
before  competition  tightened,  John  Harvey,  vice-presi- 
dent of  the  Kansas  Retailers'  Association,  handled  sales 
averaging  $100  a  day  with  a  two-thousand-dollar  stock. 
Many  a  grocer  is  today  carrying  a  stock  equal  to  Mr. 
Harvey's  for  a  fifty-dollar-a-day  trade.  Again,  one  of 
the  largest  concerns  in  Boston  is  making  eighteen  turns 
a  year  in  its  women 's  ready-to-wear  sections — a  Chicago 
store  reporting  an  equal  volume  of  sales  fails  to  make 
fourteen  turns  in  the  corresponding  departments. 

FVE  methods  of  quickening  turns  are  here  described. 
It  is  by  'plans  such  as  these  that  success  comes, 
for  faster  turns  enable  the  merchant  to  fight  harder. 

Investigations  among  drug  stores  set  4.5  as  the  national 
annual  rate  of  turnover  for  the  line.  Nevertheless,  one 
store  in  Chicago  makes  a  turnover  every  twenty 
business  days,  and  another,  a  few  blocks  down  the  same 
street,  counts  seventy  days  to  a  turn.  Naturally,  stores 
in  cities  report  quicker  turns  than  those  near  demands 
less  dense,  but  expenses  are  usually  lower  outside  of  the 
urban  sections.  Even  though  they  average  similar  varia- 
tions, the  standards  here  given  enable  retailers  to  check 
up  their  turns  in  a  general  way  and  to  place 
their  stocks  in  relation  with  other  lines.  When  the  stand- 
ards are  studied  in  connection  with  the  charts  on  pages 
177  and  189,  which  show  rates  of  turnovers  and  costs, 
it  is  possible  to  pick  the  lines  that  should  rightfully  pay 
the  heaviest  expenses. 

"With  such  average  turnover  records  available,  it  is  not 
difficult  intelligently  to  try  out  methods  used  by  others 
for  speeding  up  stock  turns.  Investigation  of  the  mer- 


186 HOW  MERCHANTS  GET  AHEAD 

chandising  plans  successfully  used  by  merchants  in  five 
states  shows  that  they  are  getting  more  turns  in  four 
ways:  locating  lines  which  move  rapidly;  weeding  out 
the  slow  lines;  setting  stock  limits;  concentrating  pur- 
chases with  a  few  manufacturers  or  wholesalers.  Some 
of  these  merchants  are  using  only  one  or  two  of  these 
methods,  others  all  of  them,  but  not  one  has  discovered 
and  tested  a  fifth  plan. 

The  first  method  for  obtaining  more  turnovers — locat- 
ing the  lines  which  turn  quickly — is,  according  to  one  of 
the  most  successful  merchants  in  New  England,  at  the 
foundation  of  good  merchandising.  Still  President  Mc- 
Glasson  of  the  National  Wholesale  Grocers'  Association 
says  that  when  he  asks  retailers  merely  how  much  stock 
they  have,  without  reference  to  the  turns  secured  by 
lines,  many  reply, ' '  Oh,  I  don 't  know. ' '  Locating  the  fast 
turning  lines  only  requires  that  stock  be  taken  frequently 
and  the  inventories  compared  with  sales  recorded  by 
lines.  Once  the  fast  turning,  profitable  lines  are  known, 
they  are  pushed  and  the  stock  on  the  shelves  cut  to  the 
lowest  limit.  The  quicker  the  stocks  in  these  lines  change, 
the  simpler  it  is  definitely  to  satisfy  customers  and  to 
merchandise  on  a  small  investment.  Manufacturers  fre- 
quently maintain  in-stock  departments  for  their  fast 
turning  lines,  and  thereby  enable  retailers  to  buy  day- 
to-day  supplies. 

11  We  would  not  know  where  we  were  coming  out  if  we 
didn't  find  the  lines  which  turn  quickly,"  declares  a 
middle-western  retailer  who  has  made  money  out  of 
hardware  for  thirty-two  years.  "Turnover  and  volume 
are  in  a  way  more  important  than  profit — the  success 
of  R.  H.  Macey  and  Company  in  New  York  proves  my 
statement.  We — or  anybody  else,  for  that  matter — could 
make  money  by  selling  everything  on  the  shelves  over- 


MORE  TURNOVERS     187 

night  for  three-fourths  of  the  cost,  if  the  next  morning 
we  could  buy  at  full  price  what  we  knew  was  wanted. 
The  fast  turning  lines  are  the  wanted  lines.  If  you 
know  them,  you  have  the  makings  of  a  good  merchandiser 
— and  a  good  merchandiser  will  succeed,  even  if  he  is 
a  poor  huyer.  We  simply  keep  our  sales  and  inventories 
by  lines.  It  helps  at  inventory  time  if  the  retail  prices 
are  put  on  each  invoice." 

The  second  plan  for  increasing  turnovers  is  to  weed 
out  the  lines  which  move  slowly.  Once  the  fast  turning 
stocks  are  tabulated,  the  less  profitable  lines  immediately 
become  evident.  If  these  slow  goods  will  not  stand 
heavier  mark-ups  than  the  rapid  lines,  they  are  usually 
unworthy  of  shelf  room.  Eliminating  unprofitable  lines 
overcomes  a  cause  of  retail  failure  mentioned  by  84  per 
cent  of  the  successful  merchants  reached  by  the  investi- 
gation in  four  states — carrying  too  many  lines.  There 
are  many  lines  which  do  not  turn  fast  enough  to  warrant 
the  retailer's  investment,  for  depreciation  gradually  eats 
up  the  slender  profit  margins  they  offer.  A  huge  sales 
volume  might  be  built  around  these  lines,  and  not  a 
penny  of  net  profit  result.  The  stores  which  frequently 
go  under  when  all  is  apparently  prosperous  are  making 
this  type  of  sales — their  owners  have  not  weeded  out 
the  slow  lines. 

A  jeweler  who  built  a  business  given  up  by  his  father 
as  worthless  into  a  going  concern  netting  him  five  thou- 
sand dollars  a  year,  has  definite  views  about  this  danger 
springing  from  slow  turning  lines.  "If  you  don't  know 
the  weak  lines,  you're  bound  to  hold  stocks  from  season 
to  season,  and  that's  the  shortest  road  to  failure,"  he 
says.  "It's  all  very  well  to  have  a  bargain  sale  or  call 
a  job  man  or  start  a  bargain  store  under  your  uncle's 
name,  but  it  is  much  more  profitable  to  know  the  stickers 


188 HOW  MERCHANTS  GET  AHEAD 

ahead  of  time.  Then  you  can  go  easy  on  weak  lines ;  or, 
if  you  do  get  caught,  persuade  the  clerks  to  help  you  with 
extra  efforts  before  it  is  necessary  to  take  mark-downs. 
' '  Don 't  stop  at  merely  knowing  the  turns  by  lines,  but 
know  the  goods.  How  many  men  who  sell  them  every 
day  know  how  clothespins  are  made  ?  Close  acquaintance 
with  your  stock  will  probably  enable  you  to  widen  your 
appeal  to  customers  by  selecting  new  lines — and  to  do  so 
brings  new  profits.  When  you  get  that  sort  of  a  grip 
on  your  stocks  it's  only  a  question  of  stock-keeping  to 
weed  out  profitless  lines.  Once  you  get  the  rapid  turn- 
ing lines  going  well,  you  will  be  in  a  position  to  aim  for 
big  gross  sales  and  less  profit — that  is  the  type  of  busi- 
ness which  makes  mone}^.  I  sell  a  certain  novelty  pin, 
for  instance,  from  a  ten-dollar  stock,  by  re-ordering 
daily.  I  don't  invest  more  than  twenty  dollars  at  a 
time  and  I  turn  it  twice  a  week  at  three  per  cent  net  on 
each  turnover.  My  friend  down  the  street  sells  at  a 
twenty  per  cent  net  profit  a  farm  implement  which  cost 
him  one  hundred  dollars.  It  took  him  six  months  to 
make  the  sale.  Against  his  forty  per  cent — counting 
that  he  repeats  the  sale  in  a  like  time — I  make  three  hun- 
dred and  twelve  per  cent  on  the  investment  and  have 
eighty  dollars  less  tied  up.  That  eighty  I  put  into 
other  fast  lines." 

CLOSE  buying,  from  a  restricted  number  of  sources, 
with  a  careful  eye  to  the  stockkeeping  standards  of 
your  line,  is  the  reply  to  the  problem  of  rising  costs. 

Third  among  the  tested  methods  used  by  the  mer- 
chants working  in  four  states  for  rapid  turns  are  definite 
stock  limits  and  plans.  The  best  way  to  prevent  over- 
buying, in  the  opinion  of  these  merchants,  is  to  fix  the 
lowest  stock  which  will  satisfy  demand  and  then  place 


MORE  TURNOVERS 


189 


Turnovers  In  Representative  Lines 
\=Oae  Turnover 


© 


FIGURE  XV III:  To  pull  what  is  considered  a  fair  profit  for  the  lines 
and  stores  up  the  grade  of  the  cost  of  doing  business  or  making  sales 
requires  on  the  average  the  number  of  turnovers  here  represented  by  circles 

orders  accordingly.  This,  again,  is  a  stock-keeping  prob- 
lem. Sales  and  purchases  kept  by  lines  give  turnovers. 
From  several  years '  records  of  turnovers,  sales  and  pur- 


190 HOW  MERCHANTS  GET  AHEAD 

chases  are  next  estimated  three,  or  even  six,  months 
ahead.  A  reasonable  increase  in  sales  is  figured  and 
leeway  left  so  that  attractive  il snaps"  may  be  purchased. 
It  is  then  possible  to  hold  the  stock  to  limits  fixed  by 
weekly,  monthly  and  semi-annual  reports.  The  facts 
for  these  reports  are  taken  directly  from  the  sales  slips 
and  account  books. 

A  system  of  this  nature  is  maintained  in  the  store  of 
every  one  of  the  successful  merchants  whose  methods 
were  investigated.  Some  of  the  stores  have  elaborate 
records,  others  only  a  cash  book  and  a  few  cards  for 
recording  sales  and  inventories.  They  all,  however, 
know  limits  beyond  which  it  is  unsafe  to  buy. 
This  overcomes  the  constant  temptation  to  buy  for 
a  discount,  to  let  the  stocks  grow  faster  than  the  turns, 
or  to  allow  the  buying  to  get  ahead  of  the  selling.  The 
investments  in  stocks  are  automatically  held  to  profitable 
figures,  the  orders  restricted  to  small  quantities,  and  the 
fast  turning  lines  pushed.  In  these  stores  new  stock  is 
arriving  every  day — fresh  goods  which  the  salesmen  like 
to  handle — and  very  little  of  the  profit  is  on  the  shelves. 

There  is  one  danger  in  buying  too  close,  however.  An 
Iowa  variety  store  owner,  who  averages  eight  turnovers 
a  year,  mentioned  it  specifically,  although  the  ma- 
jority of  the  merchants  seen  by  the  investigators 
referred  to  it.  "Your  profits  are  in  buying  close,"  he 
said,  "but  you  are  tempted  to  cut  down  your  assort- 
ments, and  that  costs  trade.  Butler  Brothers,  the  whole- 
sale house,  tell  me  that  all  of  the  failures  reported  to 
them  in  my  line  during  the  last  thirty-five  years  were 
caused  either  by  too  much  stock  or  too  few  lines.  So 
we  are  between  fires.  There  is  only  one  object,  however 
— to  get  what  the  customers  want,  in  the  quantity  they 
need,  at  prices  they  are  willing  to  pay.  I  find  that  a 


MORE  TURNOVERS 191 

want  book  and  a  simple  perpetual  inventory  increased 
the  turns  in  one  of  my  departments  from  one  to  four 
and  a  half.  I  keep  four  daily  records — charge  and  cash 
sales  by  departments  or  divisions  of  merchandise ;  daily 
sales  by  clerks;  money  due  from  customers;  and  money 
owed  by  me  and  my  bank  balance — and  six  monthly  rec- 
ords— clerks'  wages  and  sales;  charge  and  cash  sales  by 
departments  or  divisions  of  merchandise;  net  profits; 
expenses ;  inventories ;  and  notes  outstanding. 

* '  But,  after  all,  records  are  valueless  unless  you  learn 
to  say  no,  when  you're  properly  stocked,  to  the  type  of 
salesman  who  talks  about  sales  prospects,  loads  you  up 
with  more  than  you  need,  and  then  helps  out  your  rival 
when  you  can't  buy  any  more.  My  advice  is  to  be  as 
careful  about  the  buying  as  you  were  the  first  year  in 
business  and  to  care  for  it  yourself  as  long  as  your  time 
is  not  exceedingly  valuable  doing  something  else. ' ' ' 

The  fourth  method  for  obtaining  more  turnovers  is  to 
concentrate  the  buying  with  a  few  wholesalers  or  manu- 
facturers. To  do  so  is  helpful  in  two  specific  ways. 
First,  there  is  less  danger  to  the  retailer  of  over-buying 
through  duplication,  and  bookkeeping  troubles  are 
reduced.  Second,  the  manufacturer  or  wholesaler  is 
naturally  unusually  interested  in  the  retailers  who  buy 
heavily  from  him.  Especially  in  lines  where  style 
changes  are  important,  cooperation  between  the  retailer 
and  the  manufacturer  is  valuable  to  both.  The  style 
points  which  the  manufacturer  is  able  to  supply  help  to 
increase  over-the-counter  sales  when  passed  on  to  the 
retail  selling  forces.  Small  stores  are  assisted  in  their 
buying,  and  guarded  from  over-stocking,  by  the  manu- 
facturers' or  the  wholesalers'  salesmen,  when  the  orders 
are  large.  On  the  other  hand,  most  traveling  salesmen 
attempt  to  over-load  the  man  who  unnecessarily  scatters 


192 HOW  MERCHANTS  GET  AHEAD 

his  buying.  Furthermore,  the  best  "snaps,"  and  the 
most  favorable  service,  go  to  the  retailer  who  has  con- 
centrated his  buying. 

Standards  against  which  to  check  the  times  invested 
capital  should  turn,  and  plans  like  these  tested  methods 
for  handling  stocks,  supply  more  turnovers — the  business 
man 's  answer  to  mounting  costs — not  only  to  the  retailer, 
but  to  all  business.  In  office  and  factory  the  stocks  are  not 
usually  retailed.  Still  they  respond  to  improved  meth- 
ods for  getting  more  from  business  investments.  Stand- 
ards for  office  work  are  being  established,  and  turnover 
averages  in  some  manufacturing  industries  are  already 
known.  Alex.  Legge,  general  manager  of  the  Interna- 
tional Harvester  Company,  has  called  the  attention  of 
his  men  to  the  increased  turnover  which  will  result  from 
holding  down  the  materials  on  hand,  the  goods  on  dis- 
play, and  the  credits  extended  to  customers.  His 
immense  organization  is  faced  by  increasing  costs — so 
are  most  enterprises;  the  effects  and  results  of  efforts 
to  meet  these  higher  expenses  will  influence  makers  and 
distributors  alike.  When  the  retailer  buys  in  smaller 
lots,  wholesalers  must  ship  with  greater  frequency. 
Manufacturers,  in  their  turn,  establish  in-stock  depart- 
ments or  supply  the  jobbers  with  smaller  units.  In 
other  words,  the  broad  answer  to  rising  costs  prescribes, 
first,  strong  cooperation  between  the  makers  and  the  dis- 
tributors; second,  an  earnest  spirit  among  enterprises 
to  help  one  another  make  money  yield  larger  returns 
by  turning  it  more  rapidly. 


THIS  BOOK  IS  DUE  ON  THE  LAST  DATE 
STAMPED  BELOW 


AN  INITIAL  FINE  OF  25  CENTS 

WILL  BE  ASSESSED  FOR  FAILURE  TO  RETURN 
THIS  BOOK  ON  THE  DATE  DUE.  THE  PENALTY 
WILL  INCREASE  TO  SO  CENTS  ON  THE  FOURTH 
DAY  AND  TO  $1.OO  ON  THE  SEVENTH  DAY 
OVERDUE. 


,    23    \^\ 
Qu  I    *° 

CVC£      1  O   4A" 

Ucl>  j  3  IK 

9 

FEB20  1940 

20My'62»« 

REC'D  LD 

MAY  6    1962 

* 

LD  21-100m-8,'34 

u  /     / 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 


